Ex-WorldCom CEO made $11 million on stock offerings

Ebbers acted on advice of Salomon star analyst

August 31, 2002|By NEW YORK TIMES NEWS SERVICE

Bernard J. Ebbers, World-Com Inc.'s former chief executive, made more than $11 million in four years on 21 hot stock offerings he received from Salomon Smith Barney, according to new documents released yesterday by the House Financial Services Committee.

Ebbers lost money on five trades, the documents said, and would have made far more had he sold his stakes in some of the companies before he did. The losses that Ebbers incurred in his Salomon account seem to confirm that he was one of the telecommunications industry's true believers.

Those losses also suggest that he followed the advice of Jack B. Grubman, the former star telecommunications analyst at Salomon, who advised investors to stay at the telecommunications party long after it had ended. For example, as of Aug. 23, Ebbers still held 35,000 shares of Williams Communications Group, whose shares were underwritten by Salomon.

Williams sought bankruptcy protection in April, and its shares closed at 1.4 cents yesterday in over-the-counter trading. Ebbers paid $805,000 for the shares when he bought them at the initial offering price in October 1999. And he lost $8,000 on China Telecom, a company whose shares he bought in October 1997.

Still, Ebbers made far more than he lost. And Rep. Michael G. Oxley, an Ohio Republican who is chairman of the committee that subpoenaed the documents from Salomon, said: "This is an example of how insiders were able to game the system at the expense of the average investor. It raises policy questions about the fairness of the process that brings new listings to the markets."

One of the transactions in Ebbers' account was 5,000 shares of Jupiter Networks, which generated $440,125. These shares were not given to him by Salomon, however. He was able to buy them as part of an allocation to Jupiter's friends and family members.

In a letter accompanying the documents, Jane C. Sherburne, deputy general counsel at Citigroup Inc., Salomon's parent, noted again that there was no evidence that shares of initial offerings were allocated in return for investment banking business.

"The WorldCom officers and directors were among Salomon Smith Barney's best individual customers; in fact, their individual accounts put them in approximately the top 1 percent of SSB retail clients," the letter said.

A Salomon spokeswoman said that assessment referred to assets under management held by the WorldCom executives in their brokerage accounts.

Ebbers' biggest winners came before Salomon merged with Smith Barney in 1997. He made $4.6 million on 100,000 shares of Metromedia Fiber, a telecommunications company whose shares were underwritten by three investment firms, including Salomon, in October 1997.

Ebbers had gains of $2.15 million on 200,000 shares of Mc- LeodUSA, another telecommunications company whose shares were underwritten by Salomon in June 1996. And he made almost $2 million on 205,000 shares of Qwest Communications, which were issued to the public in an offering led by Salomon in June 1997.

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