Wall Street brokers meet the enemy -- and it is them.
Lawsuit Alleges Major Brokerage Arranged Sweetheart Deals for CEOs
Fired broker claims Salomon Smith Barney courted the business of powerful firms by giving them lucrative first access to IPOs
NEW YORK Investment brokerage Salomon Smith Barney was accused last week of giving telecom CEOs special deals on hot new stocks as part of an illegal strategy to win their favor and further business contracts.
David Chacon, a former Salomon broker based in Los Angeles, leveled the charges against the firm last week in a suit accusing the company of firing him for trying to blow the whistle on the deals.
Chacon says Salomon's brokerage division gave sweetheart deals to powerful CEOs in order to curry favor for future contracts with the company's investment banking branch, according to the New York Times.
Bernard Ebbers, formerly of WorldCom, and Joseph Nacchio, formerly of Qwest Communications, both of whom are now under a cloud of suspicion for alleged financial impropriety while running their firms, are among the executives identified in the lawsuit.
Chacon's charges center on Salomon's handling of initial public offerings (IPOs), which often quickly doubled or tripled in value during the stock market bubble of the late 1990s. Salomon allegedly set aside most of its IPO offerings for the CEOs of firms that had signed lucrative banking deals with Salomon. Such arrangements are illegal only if a quid pro quo is attached to the deal.
Chacon alleges that such a reciprocal arrangement was implicit and widely understood at Salomon, and hurt his less-affluent clients who missed out on the IPO offerings lavished on powerful CEOs.
Chacon said he complained repeatedly to his supervisors, including his branch manager, his regional manager, and to Jay Mandelbaum, vice chairman of Salomon, without receiving any support. Less than two months after reportedly sending a memo to Mandelbaum, Chacon was fired.
Salomon spokeswoman Arda Nazerian denied the existence of Chacon's memo, accusing him of fabricating the document and claiming that his allegations are "without merit and contain gross factual inaccuracies."
Chacon, who is now a broker at another major Wall Street firm, told the Times that he was disappointed by Salomon's response. "There is nobody to turn to if you have concerns," Chacon said. "Even in a professional manner, it cannot be done."
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