Many Telecom Executives Got IPO Shares

At least a dozen U.S. telecommunications executives and investors may have received initial public offering shares from Citigroup Inc.’s Salomon Smith Barney unit in recent years, memos from the world’s largest financial services company show.

Salomon had a system to give IPO shares to executives of companies that the firm did investment banking business with, according to the memos subpoenaed by the House Financial Services Committee. The shares could be sold at a profit within hours or days.

Citigroup maintains that all of the IPO allocations were legal.

Names on the documents include Qwest Communications International Inc. founder Philip Anschutz, Metromedia Fiber Network Inc. Chairman Stephen Garofalo, and former Williams Communications Group Inc. Chairman Roy Wilkens.

Salomon also awarded IPO shares to WorldCom Inc. officials.

The documents were gathered in a congressional investigation of whether Citigroup awarded IPO shares in exchange for future investment banking business. Regulators also are looking into whether analysts such as Jack Grubman, who had been Salomon’s star telecom analyst, touted stocks of companies that were investment banking clients of their firms.

The memos the House obtained specify the number of shares in two 1999 IPOs--Juno Online Services Inc. and Rhythms NetConnections Inc.--that each telecom executive was interested in buying.

Citigroup told investigators that executives who received IPO shares were awarded them because of their status as wealthy clients of the brokerage, rather than their corporate affiliations. Investment banking business played no role in the awards, the firm said.

“The memos merely indicate expressions of interest, as is consistent with the allocation process,” said Salomon spokeswoman Susan Thomson. “There was a huge difference between what people wanted and what they got.”

Anschutz personally received no IPO allocations, any of which would have been made to his investment fund, said Craig Slater, president of Anschutz’s investment arm. “It’s logical that, as a big trader, we would have received allocations,” Slater said.

Slater said he doesn’t know whether the Denver-based firm bought Juno or Rhythms.

Garofalo “was a Salomon customer and as with other similarly situated customers, he was given an opportunity-- which in his case was a relatively small allocation--to participate in IPOs,” said Barry Bohrer, Garofalo’s attorney. “It had nothing to do with investment banking business. There were others at his company that made investment banking decisions, and he was not in the loop.”

Wilkens could not be reached for comment.