The founder of Qwest Communications International Inc. (NYSE: Q) must pay $4.4 million to a series of charities and educational institutions as recompense for allegedly profiting from so-called IPO spinning.
Eliot Spitzer, the New York State Attorney General, announced Tuesday that Philip F. Anschutz, the Kansas-born billionaire who founded Qwest, has agreed to settle a suit brought by Spitzer in September 2002, "without admitting or denying liability."
Indeed, Anschutz, in a public statement issued by his company, denies any wrongdoing: "While we were more than prepared to fight the allegations alleged by the Attorney General, who raised a novel theory under an unusual law, we also are aware that this lawsuit could be a protracted distraction. Accordingly, it could have limited our ability to assist Qwest in its turnaround efforts and could also detract from our other businesses and investments."
The settlement is the latest volley in Spitzer's campaign against bubble-era misdeeds, and the first involving an individual. Spitzer was instrumental in the mega-settlement last month in which 10 investment banks were ordered to pay $1.2 billion in fines (see Salomon Slammed in Settlement). Spitzer's also responsible for bringing to light the wit and questionable wisdom of ex-Salomon analyst Jack Grubman. (See "Grubby of the Week" on Light Reading's homepage for samples.)
The amount of this week's settlement is "roughly equal," Spitzer's office says, to what Anschutz made in choice IPO shares that were awarded as a quid pro quo to Anschutz by the Salomon Smith Barney division of Citigroup.
In its press statement, Spitzer's office says the IPO spinning involved Salomon offering millions of dollars' worth of shares to various execs "as an inducement or reward for investment banking business from Qwest and other companies" in the years from 1996 to 2001.
Spitzer "commended" Anschutz for the settlement. Five other executives named in the AG's original suit remain to be dealt with, including Bernard Ebbers, the former CEO of WorldCom Inc.; Stephen Garofalo, chairman of Metromedia Fiber Network Inc.(MFN) (Nasdaq: MFNX); Clark E. McLeod, former CEO of McLeodUSA Inc. (Nasdaq: MCLD); and former Qwest CEO Joseph P. Nacchio.
Anschutz's estimated profits from IPO spinning are considerably less than the the $11 million Spitzer alleges Ebbers to have made in similar deals with Salomon. McLeod's another big fish, with alleged profits of $9 million. Nacchio and Garofalo made roughly $1 million apiece, Spitzer says.
Citigroup and other investment banks cited in Spitzer's settlement last month are prohibited from practicing IPO spinning by the U.S. Securities and Exchange Commission (SEC).
Anschutz will pay $1.2 million to six law schools in New York State to fund clinics for investors looking to bring securities claims to arbitration panels. Another $3.2 million will go to a series of nonprofit groups in New York, including the American Lung Association, the Anti-Defamation League of B'nai Brith, the Girl Scouts, Legal Aid, the New York Blood Center, and the Police Athletic League.
The amount isn't enormous for Anschutz, 64, a regular on the Forbes magazine list of America's wealthiest. (In February 2003, the publication put Anschutz's wealth at $4.9 billion.)
But at least two observers think it's a step in the right direction. "We think it's surely progress," says Beth Young, senior research associate at The Corporate Library, a research firm specializing in corporate governance issues. "It's notable in that, so far, with the exception of a few analysts, the attention has been on brokerage firms, not individuals." Now, she says, thanks to information Spitzer's dug up, a lot of individuals may be held accountable for their bubble-era activities.
Faint praise comes from Bartlett Naylor, a consultant and shareholder activist based in Virginia. "Cheers to Mr. Spitzer for helping put the brakes on spinning. Alas, a settlement isn't a court ruling, and so there's still no bright line," he writes in an email. "Moreover, the penalty amounts to little more than giving back stolen goods, hardly a deterrence."
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— Mary Jander, Senior Editor, Light Reading