A few weeks back, the New York Supreme Court sided with Eliot Spitzer by partially denying summary judgment and finding the former CEO of McLeodUSA liable for “spinning” (i.e. accepting IPO shares from the same brokerage firm that his company used as an investment banker). Here is a copy of the court’s decision – and a copy of the complaint.
Here is an excerpt from a related WSJ article: “A New York state court recently found former telecommunications executive Clark E. McLeod liable for receiving hot new stocks in his personal brokerage account. The rationale: His company was sending business to the same securities firm, Citigroup Inc.’s Salomon Smith Barney, that doled him the new stocks.
That is a big change. Previously, “spinning” of initial public offerings of stock involved a direct quid pro quo. In a common form, securities firms allocated IPOs to the personal accounts of corporate executives, so the shares could then be sold, or “spun,” for quick profits — in exchange for business from the executives’ companies.
IPO shares are coveted because they often surge on their first trading day. Spinning has raised concerns among investors that the IPO market is rigged.
Bottom line: Senior executives now could skate on thin legal ice if they receive IPO shares from a Wall Street firm with which their company at some point does business, and don’t disclose it to their board or shareholders.”
Disclosures of Internal Controls Remediation
We continue to update our “Internal Controls” Practice Area in a variety of ways, including this section on “Remediation of Internal Controls.” Thanks to Bob Dow, we just added Form 10-K disclosures from Maxtor Corp.; Flowserve Corp.; and ITT Educational Services.
March E-Minders is Up!
We have posted the March issue of our popular email newsletter. I’m heading to “SEC Speaks” tomorrow and unlikely to blog. Ugh, the Corp Fin panel is not until early Saturday morning…