WorldCom's Ebbers Gained $10.6 Mln on Citigroup IPOs (Update2)
By George Stein
Washington, Aug. 30 (Bloomberg) -- Former WorldCom Inc. Chief Executive Bernard Ebbers made a profit of $10.6 million on allocations of initial public offerings underwritten by Citigroup Inc., Representative Michael Oxley said.
Ebbers' profits on IPOs of SignalSoft Corp., TyCom Ltd., Focal Communications Corp., NextLink Communications Inc. and other companies were contained in new information provided by Citigroup to the House Financial Services Committee chaired by Oxley, an Ohio Republican. The world's largest financial services company prepared the information after a subpoena from the panel.
The documents show that the same corporate executives who directed their investment-banking business to Citigroup reaped millions in profits on IPO shares courtesy of the firm. Citigroup said it gave IPO shares to executives because they were brokerage clients, not to win banking business.
``This is another example of how insiders were able to game the system at the expense of the average investor,'' Oxley said in a statement on the committee's Web site.
The committee is probing whether Citigroup awarded IPO shares to corporate executives to help the firm win investment-banking business. WorldCom paid $80 million in underwriting and advisory fees to Citigroup's Salomon Smith Barney Inc. investment bank between 1998 and 2001, former Salomon analyst Jack Grubman said last month.
``The market should reward investors for taking calculated risk,'' Oxley said. ``It raises policy questions about the fairness of the process that brings new listings to the markets.''
21 Companies
Ebbers gained access to 869,000 IPO shares in 21 companies between June 1996 and August 2000, Citigroup documents filed in answer to an earlier subpoena show.
The bank had a system for giving IPO shares that could be sold at a profit within hours or days to executives of companies with which it did banking business, according to two 1999 memos sent to the committee in response to an earlier subpoena. Copies of the memos were sent to the private client services and equity capital markets departments, as well as to Grubman.
Citigroup told the committee in a letter dated Aug. 26 that Salomon's practices were legal and common in the industry, though ``sufficiently large as to raise questions about the appearance of conflicts.''
The executives received access to the shares at the IPO price because of their status as wealthy individuals and clients of the brokerage, rather than because of their corporate affiliations, Citigroup said.
In its initial response, Citigroup detailed IPO allocations to four WorldCom executives and directors and three others associated with companies that did business with WorldCom.
WorldCom, the second-biggest U.S. long-distance telephone company, filed the largest Chapter 11 bankruptcy in U.S. history last month after disclosing that it misstated $3.85 billion in costs to hide losses. The company later said it misreported an additional $3.3 billion.
Ebbers resigned in April following an 83 percent slide in WorldCom shares and an accounting investigation.
Sullivan Awards
Of the telecommunications IPO shares Ebbers acquired through Salomon, six companies have filed for bankruptcy, including KPNQwest NV, Williams Communications Group Inc. and Rhythms NetConnections Inc.
Sullivan, 40, who was indicted this week on charges he helped mastermind a multibillion-dollar accounting fraud, was allocated 32,300 shares in nine IPOs between April 1996 and March 2002.
IPO shares gained on average 48 percent on the first day of trading between 1998 and 2000, according to Dealogic LLC, a New York research company that tracks new share offerings.
Rhythms NetConnections, whose shares Citigroup documents show were bought by both Sullivan and Ebbers, went public at $21 a share on April 6, 1999. A week later, on April 13, the stock was at trading at $93.13, which turned out to be its all-time high. The company filed for bankruptcy in August 2001.
KPNQwest had an IPO price of 20 euros ($19.69) when its shares were sold Nov. 9, 1999; within four days the stock had climbed to 43.95 euros and by Dec. 20 of that year it had risen to 70.89 euros.
The House committee also is probing Citigroup's dealings with executives at Global Crossing Ltd. Last week, Oxley asked Citigroup and Global Crossing for documents about IPO share allocations to the bankrupt fiber-optic network operator's executives. The deadline to respond is Sept. 4.
Citigroup shares, which have lost 30 percent this year, are the second-worst performer in the Philadelphia/KBW index of 24 large U.S. banks and thrifts. The stock fell 7 cents to $32.75 in New York Stock Exchange composite trading |
