Salomon Crooked IPO Practices. Salomon Smith Barney, the US investment bank, on Thursday claimed a former broker who went public this week with allegations of crooked IPO practices was not dismissed from the firm for whistleblowing but for misconduct.
Salomon said David Chacon, who worked in the Los Angeles office until 2000, was fired for unauthorised trading in client accounts and for stealing commissions from other brokers.
‘Salomon’ was retaliating amid a growing conflict with Mr Chacon after he said the bank had doled out shares of sought-after IPOs to top telecom executives in return for promises of future business.
The practice, known as “spinning”, falls into a legal gray area on Wall Street.
Mr Chacon filed a wrongful termination suit against ‘Salomon’ a year ago in which he largely accused the bank of racial discrimination. But he has since amended the complaint to say he was terminated for repeatedly complaining about its IPO practices.
In it, he listed a roster of disgraced former telecom executives, including Bernard Ebbers of WorldCom, Jospeh Nacchio of Qwest, and Clark McLeod of McLeod Communications, as beneficiaries the bank’s largesse.
Mr Chacon also claimed that Salomon’s telecom analyst, Jack Grubman, played a leading role in determining which executives were included in the scheme. He said that Mr Grubman influenced the allocations through Rick Olson, a private client broker at ‘Salomon’.
Salomon said on Thursday that Mr Chacon’s allegations were “without merit”. The bank also questioned the validity of a whistle-blowing memo Mr Chacon claims to have sent to Salomon’s national sales manager in May 2000 complaining about its IPO practices.
The allegations come at a time when Salomon and Mr Grubman are already under scrutiny from lawmakers and regulators for their close ties to WorldCom.
The analyst was an early proponent of the troubled telecom company, which paid ‘Salomon’ millions in fees.
Congressman Paul Kanjorski grilled Mr Grubman over IPO allocations to Mr Ebbers last week at a hearing into the $3.9bn accounting fraud at WorldCom. Mr Grubman said at the time he could not recall if any shares had been awarded to Mr Ebbers.
He subsequently told Congress that he had attended three WorldCom board meetings when directors were considering investment banking transactions pitched by Salomon.
The National Association of Securities Dealers, the securities industry’s self-regulating body, has requested information from ‘Salomon’ about any IPOs awarded to WorldCom officials during the last five years.
Meanwhile, Mr Grubman has also become the focus of an investigation by Eliot Spitzer, the New York attorney general, into conflicts of interest in Wall Street stock research.
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