Former chief executive Bernard J. Ebbers and other WorldCom Inc. insiders received thousands of shares of valuable initial public offering stock through brokerage company Salomon Smith Barney, according to the House Financial Services Committee.
Such shares were often a lucrative deal during the bull market, when many IPO shares rose strongly in their first day of trading. Salomon, the brokerage arm of New York-based Citigroup Inc., made millions in investment banking fees from WorldCom.
Ebbers bought 120,000 shares in 12 companies, ranging from high-speed Internet provider Rhythms Netconnections Inc. to United Parcel Service, the House committee said Tuesday.
Former WorldCom chief financial officer Scott Sullivan and his wife, Carla, were allocated 32,300 shares. Sullivan has been indicted on charges of fraud and conspiracy for his role in masking losses at WorldCom and deceiving investors.
Salomon’s star telecommunications analyst, Jack Grubman, testified on July 8 before the House committee in hearings on the WorldCom accounting scandal. Grubman told the panel he didn’t know whether WorldCom executives were given special access to IPOs.
“But I can’t categorically say it didn’t happen,” he said at the time. The committee subpoenaed documents from Salomon to determine what kind of treatment the firm gave one of its biggest clients, WorldCom, a firm that also benefited from Grubman’s bullish pronouncements.
Grubman resigned on Aug. 15, after a torrent of criticism regarding his dual role as a stock picker and an adviser on mergers and other deals that generated millions of dollars in investment banking fees for Salomon.
Also receiving shares were WorldCom director Stiles A. Kellett, Jr., and board chairman Bert Roberts.
WorldCom spokesman Brad Burns said that Roberts disclosed his IPO shares to the committee several weeks ago, and “indicated he lost $58,000 in the transaction.” Roberts was allocated 3,000 shares in AT&T Wireless Group.
Kellett was allocated roughly 31,500 shares. Kellett, who is chairman of Kellett Investment Corp. of Atlanta, could not be reached for immediate comment.
In a letter to the committee released by Citigroup on Monday, Citigroup’s deputy general counsel Jane Sherburne said that while the allocations were made “in accordance with applicable regulatory standards and industry practice, we also understand that regulatory standards are evolving.”
Need Legal Help?
New York | Brooklyn | Queens | Long Island | New Jersey | Florida