Spitzer Settles IPO Insider Suit

By Michael Gormley
Associated Press
Monday, July 31, 2006

A former telecommunications industry chief executive has agreed to pay $4.4 million to settle an investigation into insiders who gained windfalls in initial stock offerings, according to the state attorney general's office.

Clark E. McLeod, the former chairman and chief executive of McLeodUSA Inc., agreed to turn over $4.4 million he was accused of earning from the act of "spinning," Attorney General Eliot L. Spitzer said. The deal was to be formally announced today.

McLeod was accused of directing more than $77 million of McLeodUSA's investment banking business to Salomon Smith Barney. In exchange, the company "secretly" gave McLeod shares of more than 30 stocks before companies' initial public offerings, according to Spitzer's 2002 civil lawsuit.

There was no finding or admission of liability in the settlement. "Mr. McLeod is happy to get this litigation behind him and continue his more productive endeavors in the telecommunications industry," said his Manhattan attorney, Harold K. Gordon.

The settlement closes one of Spitzer's early Wall Street investigations. Some critics of the probe had initially said the practice of "spinning," in which chief executives receive stock in a company before it goes public and greatly increases in value, could not be proved to be illegal.

In February, New York Supreme Court Justice Richard B. Lowe III called spinning a "sophisticated form of bribery."

Lowe issued a summary judgment against McLeod and scheduled a hearing to determine how much he would pay in damages and restitution. The settlement avoids the hearing. The $4.4 million will go to New York law schools and pay for arbitration clinics involving disputes over securities involving smaller investors, Spitzer said.

Previous Spitzer settlements in the IPO spinning investigation resulted in $6.3 million in payments from Bernard J. Ebbers, the convicted founder of WorldCom Inc.; Philip F. Anschutz and Joseph P. Nacchio, formerly of Qwest Communications International Inc.; and Stephen A. Garofalo, formerly of Metromedia Fiber Networks Inc.

McLeodUSA, a telecommunications company based in Cedar Rapids, Iowa, emerged from Chapter 11 bankruptcy protection in January after eliminating more than $600 million in debt.

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