Contact Us

PW Case Review Form
*    Denotes required field.

   * First Name 

   * Last Name 

   * Email 


   * Please describe your case:

What injury have you suffered?

For verification purposes, please answer the below question:

No Yes, I agree to the Parker Waichman LLP disclaimers. Click here to review.

Yes, I would like to receive the Parker Waichman LLP monthly newsletter, InjuryAlert.

please do not fill out the field below.

New York Sues Five Telecom Execs

Oct 1, 2002 | AP

After spending much of the year targeting star stock analysts for conflicts of interest, New York Attorney General Eliot Spitzer has turned the tables on top executives for what he says are conflicts that netted them millions of dollars at the expense of individual investors.

Spitzer on Monday announced his civil suit against five former and current top telecommunications executives. He accused them of taking millions in profits from initial public offerings of stock without disclosing potential conflicts of interest.

"The CEO ... was personally bought off by being given IPO allocations," Spitzer said at a Monday news conference. "Small shareholders were left holding the bag."

Spitzer also said the deal presumed that Salomon Smith Barney would deliver favorable stock ratings for the executives' companies as an inducement and reward for obtaining the investment banking business.

The suit accuses former WorldCom chief executive Bernard Ebbers, Qwest chairman Philip Anschutz, former Qwest CEO Joseph P. Nacchio, Metromedia Fiber chairman Stephen Garofalo and former McLeodUSA CEO Clark McLeod of failing to disclose their companies' underwriting relationship with Salomon Smith Barney as required by state law.

Ebbers allegedly made more than $11 million from several dozen IPOs in the late 1990s. Anschutz allegedly made $5 million in profits in the deals, McLeod netted more than $9 million, Garofalo made $1.5 million, and Nacchio took in more than $1 million, according to the suit.

Spitzer wants the money provided to investors, but was unsure how that would be done.

"The executives received huge perks from a vendor who sought their business," Spitzer said. "This clearly was unjust enrichment, and it violated the disclosure requirements of state law. Uninformed shareholders, meanwhile, lost millions of dollars when the stocks in the defendants companies crashed."

The suit could face some legal hurdles, one expert said.

"At the political level, this is an important move," said Columbia Law School Professor John Coffee, who has read Spitzer's court filing. "On the legal level, there are some problems with this lawsuit. In terms of its ability to get a recovery against these executives, it faces an uphill battle.

"I'm not saying he can't win," Coffee said, but "it's going to be very hard to prove that, just by saying there was a lot of business that went to Solomon. Solomon had the leading analyst in the world (Jack Grubman) and that's an entirely credible reason for giving the business to them in order to get his loyalty."

Representatives for Ebbers did not return telephone calls seeking comment. Garofalo didn't respond to a request for comment.

The Anschutz Corp. released a statement calling the suit "unfounded and absolutely without merit." Anschutz also did not personally receive any IPO allocations, nor did Qwest's board select investment banking firms, the company said.

Nacchio's attorney, Charles Stillman, said his client would be vindicated.

"The claim that Joseph Nacchio steered business to Salomon Smith Barney in return for personal IPO allocations or favorable research reports is totally false," he said. "There was no special relationship between Qwest and Salomon Smith Barney. In fact, the most important transaction in Mr. Nacchio's business life, the acquisition by Qwest of US West, Salomon lined up against Qwest and represented Global Crossing."

McLeodUSA spokesman Bryce Nimitz said the company had no comment on the suit. Clark McLeod, who has a home in Cedar Rapids, Iowa, has an unpublished number and could not be reached.

The suit is part of Spitzer's investigation of conflicts of interests at brokerages that sought investment banking business from companies while rating their stocks highly.

Last week, Salomon agreed to pay a $5 million fine to settle charges that Grubman issued misleading research reports about a telecommunications company that ended up filing for bankruptcy.

Grubman was not named as a defendant in Spitzer's suit, but in a statement, his attorney said Grubman "had no responsibility for, nor did he influence, IPO allocations to telecommunications executives."

A spokeswoman for Citigroup, parent of Salomon, wouldn't comment while the corporation is in "discussions" with Spitzer and federal regulators.

"We are moving aggressively to resolve questions about past practices and to institute far-reaching reforms," spokeswoman Arda Nazerian said. "We are committed to being a leader in raising the standards of our industry."

Related articles
Parker Waichman Accolades And Reviews Best Lawyers Find Us On Avvo