Dot-Com Clients Got Hot ‘90s IPOs

Congressional investigators released new information Wednesday on brokerages’ allocations of hot new-stock issues to favored clients, including California dot-com executives who in some cases received shares in more than 100 deals in the late 1990s.

Meanwhile, state and federal regulators met in New York, seeking to overcome differences and form a united front in talks to reach a broad settlement of conflict-of-interest charges against securities firms, sources said.

Documents made public by the House Financial Services Committee showed that executives at a host of Internet firms, including San Jose-based EBay Inc. and Sunnyvale-based Yahoo Inc., were awarded shares of coveted initial public stock offerings from brokerage Goldman Sachs Group Inc.

EBay Chief Executive Meg Whitman and Yahoo co-founder Jerry Yang each received shares in more than 100 Goldman-sponsored IPOs during the bull market, according to the documents.

Edward “Toby” Lenk, founder of now-defunct EToys Inc. of Santa Monica, got shares in more than 25 Goldman IPOs, investigators said.

More than two dozen other corporate executives are named in the documents as having received IPO shares from Goldman.

IPO allocations from brokerages to corporate executives have drawn intense scrutiny from regulators, who have alleged that the shares often were awarded in the hope that the executives then would steer corporate-finance work to the brokerages. The practice is known as “spinning.”

“While some of this may not be illegal, it’s clearly unacceptable,” said Peggy Peterson, a committee spokeswoman.

A Goldman spokesman confirmed that the firm allocated shares to the executives named but denied wrongdoing.

“We think this is an egregious distortion of the facts,” the spokesman said. “The suggestion that Goldman Sachs was involved in spinning or other inappropriate practices connected with IPO allocations is simply wrong.”

The documents did not reveal any profits that the executives made in the deals. However, many sold their shares shortly after receiving them, often the same day, the committee said. Given the fantastic price increases of IPOs in the late 1990s, some executives made “large percentage gains,” the committee said.

Rep. Michael Oxley (R-Ohio), the committee chairman, does not favor legislation to change IPO practices, Peterson said. But Oxley will discuss his findings with regulators and with brokerages in an effort to change industry practices, Peterson said.

“There is no equity in the equities markets,” Oxley said. “I call on every Wall Street firm to show respect for America’s individual investors by reforming these corrupt practices immediately.”

The committee released documents in August showing that several telecom industry executives, including Bernard J. Ebbers, former CEO of WorldCom Inc., reaped millions on IPOs allocated to them by Salomon Smith Barney, a unit of Citigroup Inc. Ebbers also received IPO shares from Goldman, though the committee did not provide details.

On Monday, New York Atty. Gen. Eliot Spitzer sued Ebbers and four other telecom executives, alleging that they were given IPO shares in return for steering fee-rich banking business to Salomon.

The committee report Wednesday stemmed from Oxley’s request last month that Goldman and Credit Suisse First Boston also supply details on their IPO distributions. The committee still is sifting through the CSFB information, Peterson said.

“We continue to support governmental and regulatory authorities as we all work together on initiatives to restore investor confidence,” CSFB said.

The documents released Wednesday showed that executives across a wide spectrum of industries received IPO shares from Goldman. The report also listed the investment banking fees the executives’ companies paid to Goldman since 1996.

Several executives and directors of fiber-optic firm Global Crossing Ltd., including CEO John Legere, got Goldman IPOs.

Also, Michael Eisner, Walt Disney Co. CEO, got 30,000 of Goldman’s own stock when the brokerage went public in 1999.

Global Crossing spokeswoman Tisha Kresler said that Legere was traveling in Europe and that she couldn’t comment on the report.

Disney spokesman John Spelich said Eisner has had personal assets managed by Goldman since 1989. “I think it’s important to note that this was a direct offering made to a client of the firm, not a third-party offering” of stock, Spelich said.

An EBay spokesman declined to comment on Whitman’s stock allocations. At Yahoo, the company issued a statement saying “Yahoo executives who received pre-IPO stock did so through private banking transactions which Yahoo was not involved in.”

Lenk, who was CEO of EToys, could not be reached for comment.

Goldman was the primary investment banker involved in the initial stock offerings of EBay, Yahoo and EToys in the late 1990s.

The committee also released data showing that Enron Corp. officials received IPO allocations from Goldman.

Kenneth Lay, former Enron chairman, got 23 IPOs. Herb Winokur, an Enron director, was part of more than 50 deals, while Robert Belfer, another board member, took part in more than 40 offerings, the committee said. Goldman earned $19 million in investment-banking fees from Enron since 1996, the report said.

Meanwhile, state and federal securities regulators worked Wednesday to hammer out a common position in their talks with Wall Street over settling their myriad investigations of alleged wrongdoing, sources said.

Besides IPO spinning, regulators also are studying whether brokerage analysts publicly hyped stocks of certain companies primarily to curry favor with the firms.

The Securities and Exchange Commission and other federal regulators had a settlement meeting last week with lawyers for Salomon. The brokerage’s attorneys met separately a day earlier with Spitzer, whose investigation into brokerage practices is widely viewed as the most aggressive.

SEC Chairman Harvey Pitt called Spitzer on Tuesday and the two men met that night in New York, according to a source. Pitt asked Spitzer to team with other regulators in working toward a “global” settlement with multiple investment banks.

Spitzer agreed on the condition that the regulators push for a tough settlement that would force meaningful changes in Wall Street practices, the source said.

Spitzer in the past has suggested that brokerages must formally separate research from investment banking, so analysts can’t be influenced by bankers.

Pitt has pushed the idea of a broad settlement in which all major investment banks would agree to wide-ranging reforms as a way to resolve the multiple investigations.

Salomon has favored a universal settlement, but some other firms have been lukewarm to the idea.

An announcement regarding cooperation between state and federal regulators is expected today, sources said.