- The Washington Times - Tuesday, October 1, 2002

ALBANY, N.Y. (AP) The New York attorney general sued five former and current top telecommunications executives yesterday for reputedly taking millions of dollars in profits from initial public offerings of stock without disclosing potential conflicts of interest.
Attorney General Eliot Spitzer claimed that Qwest Communications International Inc., WorldCom Inc., Metromedia Fiber Network Inc. and McLeod USA Inc. steered underwriting business to Salomon Smith Barney in exchange for giving the executives access to lucrative IPO shares. Once the IPO share prices soared in trading, the stocks often were sold to result in millions of dollars of personal profits for the executives, Mr. Spitzer said.
"The CEO was personally bought off by being given IPO allocations," Mr. Spitzer said yesterday at a news conference. "Small shareholders were left holding the bag."
Mr. Spitzer also said the deal presumed that Salomon Smith Barney would deliver favorable stock ratings for the executives' companies as inducements and rewards for obtaining the investment-banking business.
"The spinning of hot IPO shares was not a harmless corporate perk," Mr. Spitzer said. "Instead, it was an integral part of a fraudulent scheme to win new investment banking business."
The lawsuit accuses former WorldCom Chief Executive Bernard Ebbers, Qwest Chairman Philip Anschutz, former Qwest CEO Joseph P. Nacchio, Metromedia Fiber Chairman Stephen Garofalo and former McLeod CEO Clark McLeod of failing to disclose their companies' underwriting relationships with Salomon Smith Barney as required by state law.
Mr. Ebbers made more than $11 million from several dozen IPOs in the late 1990s. Mr. Anschutz made $5 million in profits in the deals, Mr. McLeod netted more than $9 million, Mr. Garofalo made more than $1.5 million and Mr. Nacchio took in more than $1 million, according to the lawsuit.
"The executives received huge perks from a vendor who sought their business," Mr. Spitzer said. "This clearly was unjust enrichment and it violated the disclosure requirements of state law. Uninformed shareholders, meanwhile, lost millions of dollars when the stocks in the defendants' companies crashed."
WorldCom, which owns the nation's second-largest telephone company, MCI, did not immediately return a call seeking comment. Mr. Ebbers' attorney, Reid Weingarten, didn't immediately respond to a request for comment.
Representatives for Mr. Nacchio and Mr. Anschutz did not immediately return telephone calls seeking comment. Mr. Garofalo didn't immediately respond to a request for comment left at his office.
The lawsuit was part of Mr. Spitzer's investigation into conflicts of interests at brokerages that sought investment-banking business from companies while publishing inflated ratings of their stocks.

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