August 05, 2000 04:18
Stockholders Sue Executives at Tulsa, Okla.-Based Telecommunications Firms
By D.R. Stewart, Tulsa World, Okla.
Aug. 5--Two Tulsa stockholders are suing top executives of Williams Cos. Inc. and Williams Communications Group Inc. for pocketing more than $40 million in an initial public stock offering of a partner company.
In a case reflective of the fortunes -- and liabilities -- of the new economy, stockholders Jeanette S. Wolfe and Charles V. Wheeler allege that Williams Communications executives Matthew W. Bross, John C. Bumgarner Jr. and unnamed colleagues were permitted to purchase at a steep discount shares in a Silicon Valley startup company. The startup was a company with which Williams had proposed to do business.
The lawsuit, filed Thursday in Tulsa County District Court, claims that Bross, senior vice president and chief technology officer, and Bumgarner, president for strategic investments, respectively, of Williams Communications and several unnamed executives were negotiating earlier this year with the Silicon Valley company for next-generation switching gear.
The company, ONI Systems Inc. of San Jose, Calif., manufactures fiber-optic switching gear for use in telecommunications networks such as the 33,000-mile network Williams Communications is scheduled to complete in December.
In November 1999, ONI sold 332,000 shares of its capital stock to Bross at a "friends and family" price of $3.30 per share.
The "friends and family" discounts traditionally are extended to relatives of employees of the IPO company. But in recent years, technology start-ups have used discounted stock as an enticement for proposed business partners and their executives.
Shortly after the November sale to Bross, ONI sold 63,316 shares of stock to Bumgarner at $6.32 a share, the plaintiffs claim in the suit.
In December 1999, Williams Communications was allowed to purchase 1.58 million shares of ONI at $6.32 per share, the suit alleges, and in March, Williams Communications agreed to purchase $30 million worth of ONI's switching gear by June 1.
On June 1, ONI made an initial public offering of its stock at an opening price of $25 a share. The price of ONI stock soared to more than $115 a share at the close of the markets on July 12 before settling lower in the technology sell-off of recent weeks.
ONI closed Friday at $96 a share, down $1.81.
Williams Communications closed at $28.31, up 50 cents.
Williams closed at $44.06, up 25 cents.
As a result of knowledge gained in the course of their corporate duties, the lawsuit alleges, Bross profited more than $35 million from his ONI investment as of July 12. Bumgarner profited more than $6.5 million as a result of his ONI stock purchase, the plaintiffs allege.
"As senior officers and director of Williams Communications and Williams, Defendant Bross and Defendant Bumgarner breached fiduciary duties to stockholders of Williams Communications and Williams and to Williams Communications and Williams, as well as their respective duties to act in utmost good faith with respect to the best interest of Williams Communications and Williams and their respective stockholders," the plaintiffs claim. "Defendant Bross and Defendant Bumgarner ... did breach their fiduciary duties to guard the interests of Williams Communications and Williams, and failure to guard against making and profiting or acquiring any personal benefit or advantage not enjoyed by other stockholders. ..."
The lawsuit asks the court to order Bross, Bumgarner and the unnamed executives to return their ONI shares, less their costs, to both companies.
Wheeler, one of the plaintiffs, is a Tulsa lawyer who is representing himself and Ms. Wolfe in the case, he said. A former general counsel for Cities Service and Occidental Petroleum, Wheeler has taught law at the University of Tulsa. He is retired.
"These executives exchanged an order that Williams placed with ONI for $30 million in switching gear for the stock described in the petition at bargain prices," Wheeler said in a phone interview. "The gain they realized obviously belongs to shareholders of the corporation for whom they are in a fiduciary position."
The ONI initial public offering is not the first in which Williams executives have profited.
Another startup, Sycamore Networks Inc., a developer and marketer of optical networking products based in Chelmsford, Mass., had its initial public offering last October. After opening at $38 a share, the stock soared to more than $200 a share, aided by investors' knowledge that its single customer, Williams Communications, had placed orders for $400 million of its products.
Bross and several Williams Communications executives also profited from the Sycamore's public offering since they bought stock at the "friends and family" pre-IPO price of $38 a share.
Sycamore stock closed Friday at $130 a share, up $6.25.
Williams Communications President and Chief Executive Howard Janzen, when asked about "friends and family" deals earlier this year, said they "cemented relationships" between suppliers and customers in the costly arena of evolving technology.
"But the issue is that the numbers have gotten so big that companies are amazed at how big the rewards are," Janzen said.
Criticized for the Sycamore deal, Williams' board of directors recommended that company executives no longer be allowed to participate in "friends and family" transactions. In April, a corporate policy was adopted banning employees from accepting such shares or any compensation for serving on outside boards and advisory panels.
"There has been a real sensitivity about the perception it leaves when ("friends and family") stock appreciates so rapidly," said Williams spokesman Gil Broyles. "It was thought we would limit participation -- but then it was thought that we should bar it entirely. It's more of an appearance of a conflict of interest."
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(c) 2000, Tulsa World, Okla. Distributed by Knight Ridder/Tribune Business News. WMB, WCG, SCMR,
WILLIAMS COS - WMB
Price 44 1/16
Net Change +1/4
Volume (000) 846
Day High 44 1/4
Day Low 43 3/16
WILLIAMS COMMUNICATIONS GRP - WCG
Price 28 5/16
Net Change +1/2
Volume (000) 288
Day High 28 13/16
Day Low 28
SYCAMORE NETWORKS - SCMR
Price 130
Net Change +6 1/4
Volume (000) 4041
Day High 132 1/2
Day Low 123 5/8
as of
08/07/00 08:35 AM EDT
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