Former Broker Alleges Salomon Gave IPOs to CEOs to Win Business
Thu Jul 18, 2:23 AM ET
>>Mr. Ebbers's risk was as close to zero as it gets, the suit says, because Salomon didn't allocate the shares to Mr. Ebbers's account until after Rhythms Net's shares had begun trading and were up sharply.<<
Salomon Smith Barney regularly doled out shares of hot IPOs to the personal brokerage accounts of chief executives in a bid to win investment-banking business, according to a lawsuit filed by a former Salomon Smith Barney broker whose job was to help allocate those shares, Thursday's Wall Street Journal reported.
The suit, filed in Los Angeles Superior Court by David Chacon, alleges that former WorldCom Inc. (NasdaqNM: WCOM - News) CEO Bernard Ebbers was one of at least five CEOs that Salomon handed such "free money," allocating 350,000 shares of the initial public offering of Rhythms NetConnections Inc., which soared 229% on its first trading day in April 1999 .
Mr. Ebbers's risk was as close to zero as it gets, the suit says, because Salomon didn't allocate the shares to Mr. Ebbers's account until after Rhythms Net's shares had begun trading and were up sharply. After Rhythms Net's newly issued stock quickly soared to about $90, the suit says, Salomon called Mr. Ebbers and told him that shares of the dot-com company had been set aside for him at the IPO price of $21. Mr. Ebbers took the stock and later sold it, Mr. Chacon says, reaping a $16 million windfall.
Salomon, a unit of Citigroup Inc. (NYSE: C - News) , strongly disputes the allegations. " We've examined the allegations and are confident they are without merit," Salomon said in a statement. "The timing and nature of his amended complaint contains gross factual inaccuracies." A lawyer for Mr. Ebbers didn't return calls for comment.
Mr. Ebbers -- who had a close working relationship with star Salomon analyst Jack Grubman -- wasn't alone, according to the suit. Joseph Nacchio, the ousted chairman of Qwest Communications International Inc.; James Crowe, chairman of Level 3 Communications Inc.; Stephen Garofalo, chairman and former CEO of MetroMedia International Group Inc.; and Clark McLeod, the former chairman of Level 3, are among the executives who received shares in sought-after IPOs -- and directed their firms' financing business to Salomon, according to the suit.
"Many of those shares were placed into these clients' accounts, after the stock had risen," according to the suit, which was amended from an early employment-discrimination claim. Mr. Chacon, 31 years old, says he was fired from Salomon in 2000 and now works at Credit Suisse First Boston , a unit of Credit Suisse Group.
A lawyer for Mr. Nacchio said that although his client received allocations in several IPOs, the allegations made by Mr. Chacon are "nonsense." And, he added, "there were no special relationships." In fact, the lawyer said, Salomon Smith Barney didn't advise Qwest on its purchase of U S West, the largest deal under Mr. Nacchio's watch. The transaction was completed in the summer of 2000.
Officials for Messrs. Garofalo and Crowe also didn't return calls. Mr. McLeod said he hadn't seen the suit and declined to comment. The executives were named in Mr. Chacon's suit but aren't listed as defendants.
Such alleged IPO "spinning" -- where securities firms silently allocate chunks of hot new stocks to the personal brokerage accounts they hold for corporate executives -- was temporarily rooted out four years ago, when regulators investigated the practice after disclosures by The Wall Street Journal.
Wall Street Journal Staff Reporters Susanne Craig and Charles Gasparino contributed to this report.
story.news.yahoo.com |
