Billionaire sports and business magnate Philip Anschutz is in talks to settle a lawsuit by New York Attorney General Eliot Spitzer alleging that he and four other telecom executives unfairly reaped millions thanks to cozy ties with Salomon Smith Barney, people familiar with the discussions say.
The lawsuit, filed in September, was among the first to put a spotlight on behind-the-scenes deals that allegedly benefited executives and investment banks, but misled shareholders, during the tech and telecom boom.
The lawsuit accuses the executives of getting “enormous personal profits” from shares of new public companies doled out by the investment bank. In return, the lawsuit says, Salomon got tens of millions of dollars in investment banking fees from the executives’ companies.
Bernie Ebbers, WorldCom 21 $11.5 million
Philip Anschutz, Qwest 57 $4.8 million
Joseph Nacchio, Qwest 42 $1 million
Stephen Garofalo, Metromedia 37 $1.5 million
Clark McLeod, McLeod USA 32 $9.4 million
Source: New York state attorney general
The relationship between Salomon and the executives also rested on a presumption that former Salomon analyst Jack Grubman would give high ratings to their company stocks, the lawsuit says.
No settlement with Anschutz is certain. Talks, first reported by Reuters, are preliminary, these people say. A deal would be another win for Spitzer in his push to clean up Wall Street.
Amid scandals at Enron, WorldCom and others that cost investors tens of billions of dollars, Spitzer has zeroed in on relationships between Wall Street bankers and corporate clients. The lawsuit seeks the return of $1.5 billion that Spitzer says the executives got from the sale of stock in their own companies, plus the return of $28 million in profit from IPOs.
Anschutz, who ranked 36th on Forbes’ list of richest Americans in 2002, is offering to repay most, if not all, of the $4.8 million he got from Salomon-led initial public stock offerings in a bid to get the lawsuit dismissed, sources say. Spitzer hopes settling with Anschutz could spur other defendants including former WorldCom CEO Bernie Ebbers and ex-Qwest Communications CEO Joe Nacchio to settle, people familiar with the talks say. Spitzer is not talking with the other defendants. Anschutz founded Qwest.
Representatives of Anschutz and Spitzer declined comment. Salomon, a unit of Citigroup, did, too.
In December, Spitzer reached a $1.4 billion settlement with 10 Wall Street firms. With Spitzer’s help, industry watchdog NASD hit Grubman with a $15 million fine and a lifetime ban from the securities business. Grubman was considered a kingmaker in the telecom industry for his influential research.
Also, Kevin McCaffrey, Citigroup’s former head of U.S. stock research, is under investigation by the NASD for allegedly failing to supervise Grubman.
It is unclear where any repayment by Anschutz would go. In addition to the $4.8 million, the lawsuit says he made $1.4 billion on the sale of Qwest stock.