IPOs Net $11 Million for WorldCom Ex-CEO
Former WorldCom Inc. chief executive Bernard Ebbers amassed more than $11 million on shares of initial public offerings made available to him by an investment banking house, documents obtained by a congressional committee showed.
The House Financial Services Committee is investigating whether Salomon Smith Barney, Citigroup’s investment banking division, allowed executives at WorldCom to buy shares of new technology stocks as an inducement for banking business.
The committee is also looking into whether WorldCom executives were allowed to pay the offering price even after the price had already soared.
Complying with a subpoena issued Friday, Jane Sherburne, Citigroup’s deputy general counsel, denied that IPOs were offered as a lure for business and said trades sometimes are recorded in a customer’s account at the offering price a day or two after the initial offering “for a host of benign reasons.”
Ebbers’ biggest winner was the 100,000 shares of Metromedia Fiber Network of New York that he received in October 1997 and sold on various dates the following year for a gain of nearly $4.6 million, according to Salomon Smith Barney documents that the House panel posted on the Internet.
Rep. Michael G. Oxley (R-Ohio) said the documents raise questions about the fairness of IPOs.
“The market should reward investors for taking calculated risk,” Oxley said in a statement. “This is an example of how insiders were able to game the system at the expense of the average investor.”
Citigroup responded to an earlier subpoena Monday with an acknowledgment that it provided its best customers, WorldCom executives among them, with access to IPOs. Ebbers, for example, received 869,000 shares between 1996 and 2000.
Citigroup said it would not provide further details without another subpoena.
WorldCom’s former chief financial officer, Scott Sullivan, who was indicted Wednesday on federal securities fraud charges, was allocated 22,300 shares between 1996 and March. He sold his shares at an overall loss of $13,000, records show.
WorldCom, which owns MCI, the nation’s second-largest long-distance company, filed for Chapter 11 bankruptcy July 21 after disclosing that it had overstated profits by $3.8 billion. It was the biggest such filing in U.S. history. Since then, the company has disclosed an additional $3.3 billion in inflated profits.
