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Qwest Founder Settles IPO Case

May 14, 2003 | Bloomberg News

Qwest Communications International founder Philip Anschutz agreed yesterday to pay $4.4 million to settle charges he improperly profited from initial public offerings, New York Attorney General Eliot Spitzer said.

Anschutz, who Forbes magazine says has a personal wealth of almost $5 billion, admitted no wrongdoing and will donate the money to New York law schools and charities, Spitzer said in a statement.

The settlement is the first stemming from charges brought by Spitzer against five telecommunications executives. Spitzer alleged they made "enormous" gains by receiving initial-public-offering, or IPO, shares in return for steering investment-banking business to Citigroup.

Spitzer said he is pursuing cases against the others, including Joseph Nacchio, Qwest's former chief executive, and former WorldCom head Bernard Ebbers.

"We continue to pursue appropriate remedies against individuals who were enriched unjustly," Spitzer said.

State and federal regulators last month reached a $1.4 billion settlement with 10 Wall Street firms, including Citigroup, over charges they violated securities laws. They have extended the investigation to how investment bankers sold shares in hot initial public offerings to executives of companies who could give them future business, known as "spinning."

Spinning was banned under last month's accord.

Spitzer said in September that his investigation revealed shares of 57 IPOs between March 1996 and March 2001 were distributed by Citigroup to Qwest executives. In the same period, Qwest paid Citigroup fees of $37 million, the suit charged.

The suit alleged Anschutz was the biggest beneficiary among the executives, making about $5 million selling IPO shares and $1.4 billion selling Qwest stock. Spitzer sought to recover the entire amount.

"Our sale of Qwest stock and our IPO investments were very clearly in accord with all existing regulations, laws and guidelines," Anschutz said in a statement released by his investment company.

Anschutz, a Kansas native who owns the Los Angeles Kings hockey team and one-third of the Los Angeles Lakers basketball team, founded Qwest in 1988 and built it into the fourth-largest local telephone company, serving Washington and 13 other Western states. By March 2000, his stake in Denver-based Qwest was worth $18.3 billion. He remains a director and the biggest shareholder of the company with a 16.6 percent stake.

Spitzer also sued Metromedia Fiber Network Chairman Stephen Garofalo and former McLeodUSA Chief Executive Clark McLeod.

In all, the suit seeks to recover $28 million the executives allegedly earned from selling IPO shares and $1.5 billion from sales of stock in their own companies.

Spitzer's complaint alleged the executives, including Anschutz, failed to disclose they had received the shares from Citigroup. The failure to disclose the receipt of stock violated New York's securities law, Spitzer said.

Anschutz said he was not required to disclose the IPO shares.

Citigroup and other securities firms said they handed out shares to the executives because they were personal clients, not because of the business they did with the companies.

The law schools will divide $1.2 million for fund-securities arbitration clinics, which will help investors bring claims before securities-arbitration panels, Spitzer said.

The remaining $3.2 million will be divided among charities.


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