Former Telecom Executive Agrees To Turn Over Ipo Profits
Attorney General Spitzer today announced an agreement which resolves allegations that a former telecommunications executive improperly received lucrative shares of Initial Public Offerings (IPOs).
Stephen A. Garofalo, former Chief Executive Officer of Metromedia Fiber Network, has agreed to disgorge $1.5 million in profits that he earned from the controversial practice known as "IPO spinning."
Just over $1.1 million – will be contributed to the Litigation Trust Fund, which was established with the approval of the bankruptcy court in the Southern District of New York. The Litigation Trust Fund is suing to recoup losses suffered by Metromedia and its shareholders as a result of "spinning"and fraudulent analyst reports. The remaining $400,000 will be contributed to two New York law schools to fund securities arbitration programs. The clinics, which will be established at Cardozo School of Law and the Touro Law Center, will help qualified small investors bring claims before securities arbitration panels.
"Under the historic accord that we reached with Wall Street investment firms earlier this year, IPO spinning is permanently banned. However, we will continue to pursue appropriate remedies against individuals who were enriched unjustly by doling out lucrative shares of company stock that they controlled," AG Spitzer said.
Spitzer sued Garofalo and four other telecom executives in September 2002, alleging that each had received millions of dollars in hot IPO offerings from the Salomon Smith Barney (SSB) division of Citigroup.
According to the complaint, SSB doled out lucrative IPO shares as an inducement and reward for investment banking business from Westchester-based Metromedia and other telecom companies. The complaint also alleged that Garofalo, and the other named officials, failed to disclose receipt of such shares from SSB.
Earlier this year, Spitzer announced settlements with Phillip F. Anschutz, the former Chairman and Joseph P. Nacchio, former Chief Executive Officer, of Qwest Communications International, Inc. The cases against two other executives named in the original suit -- Bernard Ebbers of WorldCom, and Clark McLeod of McLeodUSA -- are pending.
The agreement was negotiated by Assistant Attorney General Harriet Rosen and First Deputy Bureau Chief Gary Connor.