At least two telecom executives accused of “profiteering” in initial public stock offerings by New York Attorney General Eliot Spitzer are in settlement talks, sources close to the case said yesterday.
Former Qwest Communications Chief Executive Joseph Nacchio and Metromedia Fiber Network Chairman Stephen Garofalo, may be close to settling a lawsuit brought by Spitzer, But a third executive, former McLeodUSA Chief Executive Clark McLeod, is not in talks, said his attorney, Richard Werder, in an interview.
“We’re not having any settlement discussions. We intend to defend the case,” said Werder, a partner at Jones Day.
The three men, along with two others, were sued by Spitzer in September 2002. The lawsuit seeks “repayment of funds garnered through profiteering in IPOs and phony stock ratings” and focuses on IPO “spinning.”
Spinning involves Wall Street brokerages directing blocks of hot IPO shares to favored executives to win or keep their companies’ investment banking business and the rich fees that come with it. The practice was recently banned.
In addition to Nacchio, Garofalo and McLeod, WorldCom ex-CEO Bernard Ebbers and former Qwest Chairman Philip Anschutz were also sued by Spitzer, in a novel use of New York’s powerful Martin Act securities statutes.
Spitzer, a foe of Wall Street during corporate America’s recent run of scandals, alleged the five executives from 1996 to 2002 made combined personal gains of $28.2 million on IPO shares allocated to them by the former Salomon Smith Barney investment banking unit of financial giant Citigroup.
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