New York Attorney General Eliot Spitzer is about to wrap up a deal that would force former Qwest chairman Philip Anschutz to cough up about $5 million in profits he got from lucrative IPOs, The Post has learned.
Spitzer may also go after other telecom industry CEOs on more serious “spinning” charges that would carry stiffer penalties, said sources close to the deal. They include former WorldCom CEO Bernie Ebbers; Metromedia Fiber Networks Chairman Stephen A. Garofalo; former McLeod USA CEO Clark E. McLeod and former Qwest CEO Joseph P. Nacchio.
While Anschutz’s profits are viewed as “unjust enrichment,” the others might be more severely judged, because they sought to get into other hot IPO deals. Spitzer sued the five execs in late September, demanding repayment of money they got from the hot IPO shares acquired in return for giving their investment banking business.
Citigroup’s Salomon Smith Barney unit offered the executives access to valuable IPO shares while winning lucrative underwriting business from the executives’ companies, according to the suit.
Those shares then soared in the after-market, and were sold to net the executives millions of dollars in personal profits.
“The spinning of hot IPO shares was not a harmless corporate perk,” Spitzer said at the time the suit was filed. “Instead, it was an integral part of a fraudulent scheme to win new investment banking business.”
The attorney general’s press office declined comment on a prospective deal with Anschutz. The office is still determining what it will do with the returned profits, sources said.
From March 1996 through June 2001, Salomon Smith Barney made 57 IPO offerings available to executives of Qwest Communications including Anschutz, who made almost $5 million in profits on the deals according to Spitzer’s original complaint.
Former CEO Joseph Nacchio received 42 IPO allocations and made more than $1 million in profits, the complaint states.
Salomon Smith Barney earned $37 million in underwriting and investment banking fees from Qwest during that same period.
WorldCom executives profited as well. Between September 1998 and February 2002, Salomon Smith Barney offered more than 21 IPOs to WorldCom executives, including former CEO Ebbers, who individually made more than $11 million on the deals.
During roughly the same time period, Solly obtained 23 investment banking contracts with WorldCom, generating $107 million in fees.
Negotiations for individual deals with the other execs are under way.
The case against the executives cites New York’s Martin Act and Executive Law, which do not require evidence of a quid pro quo between the executives and Solly. Instead, the attorney general must prove there was a failure to disclose material facts that might affect the value of an investment.
Regulators banned spinning as part of the $1.4 billion global settlement over tainted investment research.
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