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Some Telecom Execs Cashed In Big On IPOs, Documents Show

Sep 3, 2002 | USA Today

The world is getting a peek at how much telecom executives made on stocks in the boom years -- not from their own companies, but from shares in other hot public offerings.

A congressional committee released documents Friday from Salomon Smith Barney showing that former WorldCom CEO Bernie Ebbers, for one, made more than $11 million selling IPO shares that Salomon doled out to him from 1996 on.

Former WorldCom CFO Scott Sullivan -- indicted last week on securities fraud and related charges -- wasn't so lucky. He got fewer shares and lost about $13,000 overall because he held on too long to Rhythms NetConnections, selling the 7,000 shares at a $144,450 loss in May 2001.

Lawmakers wonder if Ebbers and others got IPO shares, which regular investors often couldn't get, in exchange for handing Salomon investment banking business. WorldCom paid Salomon $80 million in fees from 1998 to 2001, former Salomon analyst Jack Grubman has said.

Ebbers and others made as much as $17.5 million on shares in Metromedia Fiber, Qwest Communications, Rhythms and other companies. The former and current WorldCom executives included board member Stiles Kellett, ex-chairman James Crowe, ex-board member Walter Scott and former executive Roy Wilkens.

Chairman Bert Roberts lost money on the IPO shares, WorldCom said last week.

Kellett has defended his purchases, saying he was a big private client of the bank.

Friday's documents show when the executives sold and how much they made -- details Salomon gave only under subpoena by the House Financial Services Committee. Last week, Salomon only said how many shares they'd gotten.

The documents don't show anything illegal. Salomon has said the practice was common and legal because the executives were in the top 1% of the bank's retail clients. But Grubman, who touted WorldCom's stock to regular investors, was aware of how the IPO shares were split. And Salomon suggests it will deal with IPO shares differently in the future.

Meanwhile, Ebbers still owes WorldCom about $408 million. He and others could not be reached.

Ebbers profited most by selling:

* Metromedia. He got 100,000 shares in 1997 for $16 a share. He sold them all over the next year for a profit of $4.6 million, including one trade of 74,875 shares.

* Qwest. He got 205,000 shares for $22 a share in 1997. In just two months, he unloaded them all for a $2 million profit.

* McLeod. He got 200,000 shares in 1996 and sold them a few months later for a $2.2 million profit.

Ebbers' trades weren't all savvy. He got 10,000 shares of high-speed Internet seller Rhythms, which rocketed 229% on its first day in 1999, giving him a paper profit of $481,300. But he didn't sell the shares until nearly a year later, after they'd fallen considerably -- netting him a $66,900 profit.

The documents also say Crowe, now CEO of Level 3 Communications, made as much as $3.5 million on 170,000 Qwest shares. Crowe declined to comment.

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