Former top WorldCom executives bought hundreds of thousands of shares in many initial public offerings (IPOs), including rival telecom players' offerings, it has emerged.
Those who purchased shares included former Chief Executive Officer Mr Bernard Ebbers, former Chief Financial Officer Mr Scott Sullivan, current WorldCom Chairman Mr Bert Roberts, and current board director Mr Stiles Kellett, according to documents released by the US House Financial Services Committee.
"It's hard to avoid the conclusion that IPOs were offered in order to leverage investment banking business," said committee spokeswoman Ms Peggy Peterson. "There are large policy questions here about IPO allocations and I think our members are going to be very interested in this issue."
They received shares in offerings ranging from now-bankrupt Rhythms NetConnections, Williams Communications Group and rival long-distance telephone carrier Qwest Communications International to other industries like United Parcel Service (UPS) and Kraft Foods, the records show.
Mr Ebbers was the biggest recipient, getting 869,000 shares for about $17 million in 21 IPOs, between June 1996 and August 2000, including 205,000 shares of Qwest, the records show.
Mr Ebbers was ousted as chairman of WorldCom in April as a result of pressure from the company's huge debt, as well as, over the $400 million in personal loans that the company made to him. His lawyer did not return a call seeking comment.
The House committee subpoenaed the information as part of its probe into WorldCom's bankruptcy and how the brokerage Salomon Smith Barney and its predecessor companies allocated IPO shares.
Investigators are also inquiring into a possible conflict of interest involving Salomon's former star telecommunications analyst, Mr Jack Grubman. He was widely criticised for his positive ratings on communications companies even as they were imploding.
Among the documents released were two 1999 memos about allocations that executives from various companies wanted in two IPOs: Juno Online Services and the now-bankrupt Rhythms. Mr Grubman and seven others are listed as recipients of the information.
WorldCom admitted in June and July to $7.6 billion in accounting errors dating back to 1999. The company - the second largest US long-distance telephone and Internet data mover - was forced to file for bankruptcy protection in July.
The data surrendered by Salomon's parent, Citigroup, did not include information of when, if ever, the shares were sold and for how much.
In the late 1990s until early 2000, technology IPOs were almost guaranteed to skyrocket in the open market, meaning investors who got in at their offering prices would likely reap risk-free gains.
Rhythms soared more than 200 per cent in its April 6th, 1999, debut. It was offered at $21, and rose as high as $64 on its first day. The company has since filed for bankruptcy. UPS jumped 30 per cent, to $65, from its pricing of $50.
"This raises additional questions about whether there may have been spinning involved and what the timing of the allocations was," Ms Peterson said, referring to the practice of selling the shares once trading begins, often at a higher price.
Salomon, which won hundreds of millions in fees from telecom deals over the years, has defended the practice of offering IPO shares to top corporate executives.
The firm "is now considering further steps to improve the IPO allocation process," Citigroup lawyer Ms Jane Sherburne told the committee in a letter released on Monday.