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Monday, 30 September, 2002, 20:45 GMT 21:45 UK
Legal blow for WorldCom ex-boss
New York attorney general Eliot Spitzer
Mr Spitzer says small shareholders lost out

New York's top law-enforcement official has filed a civil lawsuit against WorldCom's former head Bernie Ebbers and four other telecoms chiefs on fraud charges.


To the extent that these IPO shares were given at all, they should have gone to the company not to the CEO

Eliot Spitzer
New York attorney general
In addition to Mr Ebbers, the complaint also names Qwest Communications founder Philip Anschutz and its former chief executive Joseph Naccio, Metromedia Fiber Networks chairman Stephen Garofalo and former McLeod USA CEO Clark McLeod.

In a press briefing, Attorney General Eliot Spitzer said Monday's lawsuit seeks the return of tens of millions of dollars from the men for allegedly benefiting from a scheme that enriched them and their banking partners at the expense of small investors.

Mr Spitzer alleges the executives were "bought off" with personal allocations of newly floated shares in exchange for steering their underwriting business to Salomon Smith Barney.

Hidden deals

In turn, Salomon derived hundreds of millions of dollars in fees from telecoms deals.

Such a scheme was illegal, Mr Spitzer said in his suit, because the firms did not disclose an ongoing banking relationship.

"These individuals are being told very simply, you cannot individually benefit from this structure," he said.

"If there were benefits to be given at all, return them to the company, return them to the shareholders."

In August, Salomon, a unit of Citigroup, told Congress it allocated millions of shares in hot technology stocks to executives at now-bankrupt telecoms-firm WorldCom.

Among those was Bernie Ebbers, who founded and ran WorldCom until last April.

Mr Ebbers pocketed $11.1m (7.1M) over four years from newly floated stock offerings.

"To the extent that these IPO shares were given at all, they should have gone to the company not to the CEO," Mr Spitzer said in announcing the civil suit.

"At the end of the day the loser was the small shareholder."

It's a 'buy'

Mr Spitzer is expected to produce e-mails that prove the five executives had close ties with Salomon telecoms-analyst Jack Grubman.

Mr Grubman resigned from his firm in August following allegations he continued to recommend investors buy tech stocks even as it was becoming clear the boom in the telecoms sector was over.

While he was not named on Monday in Mr Spitzer's suit, he remains under investigation by the attorney general's office as well as federal regulators.

Mr Grubman has now been targeted by at least 40 consumer complaints and lawsuits.

Many of these were related to the WorldCom collapse.

 WATCH/LISTEN
 ON THIS STORY
Attorney General Eliot Spitzer
"The loser was the small shareholder"

Politics of regulation

Worldcom goes bust

Enron fall-out

Andersen laid low

FORUM
See also:

26 Sep 02 | Business
26 Sep 02 | Business
14 Aug 02 | Business
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