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Former Qwest Chairman To Settle IPO Charges

Anschutz to Pay $4.4 Million Over Alleged Perks

May 14, 2003 | Washington Post

Philip F. Anschutz, former chairman of Qwest Communications International Inc., agreed yesterday to donate $4.4 million to a group of charities and law schools to settle charges that he illegally profited from shares in initial public offerings provided by his company's investment banker.

Anschutz, a billionaire investor, is the first of five telecommunications executives to settle charges of unjust enrichment that were brought last September by New York Attorney General Eliot L. Spitzer. All five have led companies that did investment-banking business with Salomon Smith Barney, the bank that provided access to IPO shares of hot technology firms.

Spitzer charged that the executives steered investment-banking business to Salomon Smith Barney, now Citigroup Global Markets Inc., in exchange for access to the IPOs, a practice commonly referred to as spinning.

Former Qwest chief executive Joseph P. Nacchio, former WorldCom Inc. chief executive Bernard J. Ebbers, former McLeod USA Inc. chief executive Clark E. McLeod and Metromedia Fiber Network Inc. Chairman Stephen A. Garofalo were also sued.

Anschutz admitted no wrongdoing under the terms of the deal, but he agreed to donate an amount roughly equal to his profits from the IPO sales.

During the late 1990s, IPOs for technology companies were a much-sought-after commodity. Shares often soared during the first days of trading, sometimes doubling and tripling in value. Investment banks doled shares out to favored customers, allowing them to reap a quick profit.

The Anschutz Co., a holding firm for Anschutz's investments, said yesterday that Anschutz never personally handled the IPOs that were managed by his investment firm's portfolio managers. "The Anschutz Company received IPO's because it is a large brokerage client that actively invests in a broad range of publicly traded stocks and bonds," the statement said.

Anschutz and the other four executives were also charged with failing to properly disclose the stock sales. The Anschutz Co. denied that charge, saying all necessary and appropriate disclosures were made.

Spitzer sought to recover a total of $28 million, an amount equal to the allegedly improper gains, from the executives.

A spokeswoman for Citigroup said the firm no longer awards IPO shares to executives of publicly traded companies. "Over the past several months, we have instituted several reforms to assure that we allocate shares according to appropriate standards," she said.

Spitzer also said in the lawsuit that former Salomon analyst Jack B. Grubman improperly pumped up the value of the executives' companies by advising clients to buy even as values tumbled.

During the period Grubman held a "buy" rating on the various stocks, the executives sold $1.5 billion of their own shares, an amount that Spitzer's lawsuit also seeks to recover. Yesterday's settlement, however, clears Anschutz of any liability in that matter.

Grubman rated Qwest a buy from July 5, 2000, when the stock was valued at $58 per share, until March 6, 2002, when he downgraded his rating to neutral and share prices had fallen to $10.08. Yesterday, shares of Qwest closed at $4.49, down 8 cents, or less than 2 percent.

Between March 1996 and June 2001, Anschutz received 57 IPO allocations from Salomon, allowing him to earn approximately $4.8 million, according to Spitzer's lawsuit.

From 1998 to July 2001, Salomon advised Qwest on 18 separate deals, allowing the investment bank to bill the company for $37.5 million in fees.

Under the settlement's terms, the Anschutz Co. agreed to donate $1.2 million to six law schools in New York. An additional $3.2 million will be divided among several New York State not-for-profit groups.

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