Former Qwest ( Q) CEO Joe Nacchio is negotiating with the New York Attorney General's office to settle allegations that he unfairly profited on IPO-spinning schemes. Though an agreement is not yet in hand, a person familiar with the discussions said a settlement could be reached in the coming weeks. Nacchio's attorney, Charles Stillman, denied that any negotiations are taking place. A spokeswoman from the Attorney General's office declined to comment on the matter. Nacchio is one of five
telecom executives targeted by New York Attorney General Eliot Spitzer for his role in IPO spinning. Spitzer's office charges that the five executives were given allocations of red-hot IPO shares underwritten by Citigroup's ( C) Salomon Smith Barney investment-banking division. These shares, which typically tripled and quadrupled in value soon after they were sold to the public, were used to encourage the executives to steer investment-banking business to Solly. Spitzer's office is seeking to recoup a total of $28 million in profits that the telecom executives reaped on those red-hot shares, according to the original lawsuit filed in September. Spitzer's other targets include Bernard Ebbers, former CEO of WorldCom; Clark McLeod, former chairman of McLeod; and Stephen Garofalo, chairman of Metromedia Fiber. Ebbers was apparently the biggest profiteer in the spinning arrangements with Salomon. Spitzer's office is looking for $11 million in fines from Ebbers. Nacchio reaped at least $1.4 million in gains from his sale of some 15 IPO allocations, according to documents from Spitzer's office that were released in April. His largest profits came from sales of IPO shares of Juniper ( JNPR) and ONI, networking companies that supplied Qwest with telecom gear. Nacchio would be the second telecom executive to settle with Spitzer's office. Last month, Qwest founder and Nacchio's former boss, Phil Anschutz, satisfied the Attorney General's office by agreeing to give $4.4 million, or roughly the proceeds of his IPO gains, to charities. Observers say Nacchio probably will strike a similar arrangement.
Phil Burgess, a former vice president of communications for Qwest who left soon after the close of the Qwest US West merger in June 2000, said he couldn't recall any executives getting access to IPO shares before Qwest entered the picture. "Joe and Phil were tight with the investment bankers; I think this was just one manifestation of that," said Burgess, who is now a consultant in Annapolis. Qwest is still reeling from the aggressive spending and reckless revenue-recognition policies of the former management team. Despite the Denver local phone giant's effort to trim debts and cut costs, which helped the company return to profit in the first quarter, the new financials are still under a cloud of scandal. The company has had to restate more than $1 billion in revenue relating to the controversial sales and swaps of network capacity. Last month, the company said the Securities and Exchange Commission has once again
expanded the scope of its long-running investigation. As a result, Qwest's financial reports over the past year are still unofficial, pending the end of an SEC audit. Don't feel too bad for Nacchio, though. After raking in $226 million from his sales of Qwest stock as he helped run the company right up to the brink of insolvency, Nacchio was given a $10.5 million severance package when he left the company in 2001. So giving $1 million or thereabouts to charity to make a pesky IPO-spinning case go away might actually serve to polish his reputation.