Top local telecommunications executives Wednesday denied that offers to buy coveted IPO stocks affected their investment banking decisions.
The U.S. House Financial Services Committee this week released documents it subpoenaed from Salomon Smith Barney detailing the investment-banking giant’s allocation of initial public offering shares to certain telecom executives.
Among the names on the “wish lists” for shares of companies preparing for initial public offerings are former WorldCom chief executive Bernard Ebbers, former Qwest CEO Joe Nacchio, Level 3 Communications CEO James Crowe and the Anschutz Co.
Among the IPO shares Salomon doled out to big clients were those of three Colorado companies: now-defunct Rhythms NetConnections of Arapahoe County, Denver-based Qwest and Boulder-based SignalSoft. Also included was a third company with local ties: KPNQwest.
Most information on whether executives bought and sold those shares is not publicly available. Typically, only employees of a company, their associates and investment banks’ big clients get the opportunity to buy IPO shares.
A spokeswoman for Nacchio denied Wednesday that he referred Qwest’s investment-banking business to Salomon in exchange for IPO shares. One of the Salomon documents released by the House committee shows that Salomon offered Nacchio 50,000 shares of Rhythms’ IPO and a like amount of online service Juno’s IPO.
“Mr. Nacchio was never allocated shares in IPOs by Salomon in exchange for future business,” said Marcia Horowitz, who represents Nacchio for Rubenstein Associates. “Any allocations he received were modest amounts of shares, and Joe was personally a valued client of Salomon.”
However, investigators for the House committee have concluded otherwise in regard to IPO allocations offered to executives of WorldCom, Qwest, Level 3, Denver investor Donald Sturm, McLeodUSA and others.
“After reviewing these documents, we perceived that it’s hard to avoid concluding that these IPO shares were provided in order to induce investment-banking business,” committee spokeswoman Peggy Peterson said.
As one of Wall Street’s largest investment banks, Salomon does business on some level with most publicly traded companies, including Qwest and WorldCom.
For Qwest’s part, the company has a policy – currently under review – that requires approval from its legal department before executives invest in companies that could do business with Qwest.
Some observers noted that Salomon likely allocated IPO shares to executives with big trading accounts because brokers make commissions when their clients trade shares. By providing big clients the chance to buy IPO shares, those brokers stood to gain more commissions.
Craig Slater, president of Denver-based Anschutz Investment Group, said the firm might have bought IPO shares from Salomon for its portfolio, but Qwest founder and largest shareholder Philip Anschutz did not.
“Phil personally received no allocations, no friends-and-family shares,” Slater said. “It’s totally logical that our (corporate) portfolio would have received shares just as any other money manager would. I don’t think they were inordinately large.”
Representatives of Level 3 and Clinton, Miss.-based WorldCom, which employs 5,000 people in Colorado, declined to comment. Representatives of Sturm, a large Level 3 investor and founder of a now defunct telecommunications startup, did not return a phone message seeking comment.
Among the offers Salomon made to Colorado telecom executives and those with ties to the state to buy IPO shares were the following:
Rhythms IPO shares were offered to Ebbers (300,000 shares), Sturm (250,000), Anschutz (250,000), Level 3 chairman Walter Scott Jr. (100,000), Nacchio (50,000) and former WorldCom chief financial officer Scott Sullivan (7,000), among others.
Shares in Qwest’s 1997 IPO were offered to Level 3’s Crowe (170,000 shares), Ebbers (205,000) and Scott (250,000), among others. Crowe served as a member of Qwest’s board.
Shares of online service Juno’s IPO were offered to Ebbers (300,000), Sturm (250,000), Anschutz (250,000), Scott (100,000) and Nacchio (50,000), among others.
Salomon offered Ebbers IPO shares from SignalSoft (5,000) and Qwest’s European joint venture, KPNQwest (20,000).