Salomon Smith Barney handed over documents under subpoena Monday revealing that the brokerage gave WorldCom officers and directors shares in 39 companies Salomon helped take public since 1996.
The documents given to the House Committee on Financial Services show that some WorldCom executives made average gains of $12,000 to $770,000 on their shares in each deal.
The committee, which is expected to release the names of the executives in coming weeks, requested the documents as part of its investigation into whether Salomon gave WorldCom executives and directors shares in other companies’ IPOs as a way to win business from WorldCom.
Although the WorldCom executives only got to buy shares at the IPO price, IPOs often rose considerably their first day of trading, especially during the Internet boom.
“We recognize that some allocations to corporate officers and directors, while lawful, were sufficiently large as to raise questions about the appearance of conflicts,” Salomon said in a letter to the committee, adding, “We are considering new measures to further improve the IPO allocation process at (Salomon) and in the industry generally.”
The committee also is requesting documents disclosing how much stock Salomon gave executives and directors of Global Crossing, a telecommunications company that filed for bankruptcy protection Jan. 28 and is under investigation by the Justice Department and the Securities and Exchange Commission.
Salomon, which is a division of Citigroup, must turn over those documents by Sept. 4.
The firm’s allocation process dramatically changed after Salomon merged with Smith Barney in 1997 because of the demand for IPOs by Smith Barney’s large number of retail investors. Before the merger, WorldCom executives received an average of 101,500 shares on each deal. In one case, an executive got as many as 250,000 IPO shares. After the merger, they got an average of 6,409.
While the committee is scrutinizing Salomon Smith Barney and its former star telecom analyst Jack Grubman, the documents raise questions about how other Wall Street firms may have doled out coveted IPO shares to try to win investment-banking business.