Salomon Documents Name IPO Recipients
Citigroup Inc.’s Salomon Smith Barney brokerage and its predecessor awarded coveted initial public offering shares to several WorldCom Inc. executives and directors, including founder Bernard J. Ebbers, according to documents released Tuesday by the House Financial Services Committee.
The committee, investigating allegations that Salomon set aside IPO shares for executives in exchange for investment banking business during technology stocks’ heyday, subpoenaed the documents. They show IPO shares were given to Ebbers, former WorldCom Chief Financial Officer Scott D. Sullivan and directors Bert Roberts and Stiles Kellett, among others.
The documents show Salomon rewarded some of the executives who were in a position to direct investment banking business to the firm. WorldCom paid Salomon $80 million in banking fees from 1998 to 2001, according to testimony from the firm’s former telecom analyst, Jack Grubman.
In a letter to the committee, Citigroup said the allocations by Salomon were legal and were justified because the executives were among Salomon’s biggest individual clients.
“These allocations may or may not have been technically legal, but setting that question aside it does raise questions in our minds,” said Peggy Peterson, a spokeswoman for Rep. Michael G. Oxley, (R-Ohio), chairman of the House committee.
The New York attorney general and other regulators are looking into whether Grubman issued favorable ratings on certain stocks to win the firms’ banking business. He has denied any wrongdoing.
Ebbers was awarded 869,000 shares in 21 companies between June 1996 and August 2000. The companies included United Parcel Service Inc., Rhythms NetConnections Inc. and Juniper Networks Inc. The data turned over by Citigroup did not include information about when, if ever, the awarded shares were sold and for how much, a key question lawmakers probably will ask.
Of the telecom IPOs Ebbers acquired through Salomon, six have filed for bankruptcy. They are KPNQwest, Williams Communications Group Inc., Rhythms NetConnections, Metromedia Fiber Network Inc., Teligent Inc. and McLeodUSA Inc.
WorldCom spokeswoman Julie Moore declined to comment on Ebbers and Sullivan, noting they no longer work at the company.
WorldCom filed for bankruptcy protection in July. Sullivan since has been charged with securities fraud related to billions of dollars in accounting misstatements WorldCom revealed in June.
Sullivan and his wife, Carla, bought 32,300 shares in nine IPOs for a total of $680,350 from 1996 to March 2002, the documents show.
Current WorldCom Chairman Bert Roberts received shares in the IPO of AT&T; Wireless Services Inc. in 2000. He was allocated 3,000 shares at a cost of $88,500.
Roberts “didn’t receive the IPO shares from Grubman and he lost $58,000” on the stock, said WorldCom spokesman Brad Burns. He said Roberts gave the committee that information weeks ago.
Citigroup shares fell 20 cents to $34.20 on the Big Board.
