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Goldman's 21 Club

House committee says investment house gave IPO shares to lucrative banking clients; eBay's Whitman topped the list. Plus: SEC to crack down on pro forma use, employees more upbeat than their bosses, and Stewart resigns from the NYSE.
Stephen Taub, | US
October 4, 2002

The war against Wall Street is hotting up.

Yesterday the House Financial Services Committee released information showing that top executives at 21 companies received shares in some of the hottest initial public offerings underwriting by investment bank Goldman Sachs. The 21 companies were investment-banking clients of Goldman Sachs.

Apparently the biggest recipients were eBay Inc. CEO Margaret Whitman and Yahoo Inc. co-founder Jerry Yang. Each of them received shares in more than 100 IPOs managed by Goldman since 1996. The two executives quickly turned around and sold the shares for a tidy profit, according to the Wall Street Journal.

Three other eBay officials were IPO recipients: director Robert C. Kagle received shares in more than 25 IPOs, co-founder Jeffrey S. Skoll got stock for more than 75 IPOs; and founder Pierre M. Omidyar received shares from more than 40 first-time stock offerings.

Other executives who received IPO shares from Goldman Sachs—and whose companies paid investment-banking fees to Goldman—include a number of officials from dead or languishing dot-coms, including Edward Lenk, former CEO of defunct eToys. Lenk received shares in more than 25 IPOs. Goldman also gave Martin Peretz, former director of Inc., shares in more than 25 IPOs. In addition, iVillage Inc. co-founder Nancy Evans received stock from more than 50 IPOs that Goldman underwrote.

Tyco's two top former executives also received shares from Goldman's own IPO. Former CEO L. Dennis Kozlowski received 7,500 shares, while former chief financial officer Mark Swartz got 5,000 shares. The two are currently out on bail after being charged with stealing millions of dollars from Tyco.

A number of Global Crossing executives received IPO shares as well, including CEO John Legere, who got stock from 9 IPOs; former CEO Leo Hindery, who received 5,000 shares from Goldman's own IPO; director Stephen J. Green, who got stock from more than 75 IPOs; former director Barry Porter, who received shares from 12 IPOs; and founder and former director Abbott Brown, who was given stock from 10 IPOs.

Porter said he received the IPOs after he left Global Crossing and made only $10,000 in profit, according to the Journal.

At Enron, ex-CEO Kenneth Lay received shares in 23 first-time stock offerings, while director Herb Winokur and his wife got shares from more than 50 Goldman-led IPOs.

Several WorldCom executives received IPOs from Goldman as well, including former CEO Bernie Ebbers; Stiles Kellett, director and compensation-committee chairman, who received 1,000 shares from Goldman's IPO; and John Sidgmore, the soon-to-be ex-CEO.

Other recipients of shares in Goldman's IPO include Michael Eisner, CEO of Walt Disney Co.; Barry Sternlicht, CEO of Starwood Hotels & Resorts Worldwide Inc.; and William Clay Ford, a director of Ford Motor Co.

Many of these executives quickly sold these shares, said the House committee. "In all cases, analysts never advised investors to sell shares, despite plummeting prices," it said in a statement. "One company's lowest rating for over half of its companies was 'market outperform,' the equivalent to a buy."

SEC Says Pro Forma Numbers Don't Add Up
The Securities and Exchange Commission is planning to crack down further on the widespread use of pro forma financial results.

According to Bloomberg, the regulatory agency is planning to require companies that publish these alternative financial figures to explain how they differ from earnings that follow U.S. GAAP.

The wire service estimated that about 1,500 companies used pro forma results in news releases last year before they filed official reports under generally accepted accounting principles.

The recently signed Sarbanes-Oxley bill already requires companies that use pro forma results to show how they compare with GAAP earnings. The act also forbids companies from issuing news releases that omit "material" facts.

The SEC plans to spell out the requirements of the law.

"You have pro formas that on their face are flat-out misleading, and it occurs often enough to be troubling," SEC corporation finance director Alan Beller told Bloomberg. "Reconciling the figures is a pretty clear way of dealing with the problem."

As we reported last year, an exclusive survey of 196 finance managers showed that 82 percent of respondents said their companies report some kind of pro forma earnings in press releases. The poll also showed that 88 percent of corporate filers believe it is appropriate to include nonfinancial measurements in growth trends.

A similar survey released in January by the National Investor Relations Institute said that of the 233 companies sampled, 133 reported pro forma information with prominence—or at least equal importance to GAAP measures.

PwC Agrees to Boost Pension Fund
PricewaterhouseCoopers said it will deposit an extra $264 million into the retirement pension plans it sponsors for nearly 47,000 workers and retirees.

The agreement with the Pension Benefit Guaranty Corp. is for at least five years.

PwC will transfer $200 million to its defined benefit plan within a week after it closes on its sale of its consulting business to IBM.

It will contribute an additional $64 million by March 15, 2003.

The company also agreed to maintain the plan's existing credit balance and make annual plan contributions in amounts greater than required by law.

In other pension news, Xerox Corp. on Thursday said an Illinois court ruled against the company in a class-action lawsuit against its retirement plan.

Xerox said in a regulatory filing that on September 30, 2002, the U.S. District Court for the Southern District of Illinois entered a final judgment for the plaintiffs and adopted their methodology for calculating damages.

In December 2001, the plaintiffs had submitted papers claiming they were owed $284 million.

Xerox said its Retirement Income Guarantee Plan (RIGP) will file an appeal of the court's rulings on both liability and damages.

Xerox said its RIGP denies any wrongdoing and believes it has strong arguments on appeal.

Employee Confidence Rises
Who says executives and employees don't live in different worlds?

Just one day after the nation's top CEOs painted a bleak picture of the U.S. economy, a new survey reveals that employees are fairly optimistic about the future.

Worker confidence increased in September following a two-month decline, according to the Gallup/UBS Employee Outlook Index, a joint venture of The Gallup Organization and UBS.

The index rose 8 points to 66, up from a 58 score in August. That's the first rise in employee confidence since June. "This rebound reflects improving employee optimism in the present and future conditions of their companies," according to the survey's organizers.

Among other topics, 72 percent of those surveyed rated their boss as either "excellent" or "good to work for."

In addition, 74 percent of the respondents said their boss is doing an "excellent" or "good" job for their employer.

When asked about job stress and its root causes, 54 percent of those surveyed cited "demands of the job itself." The "people you work with" ranked second (20 percent of the respondents), followed by 10 percent who cited "their boss."

When it comes to their personal situation, 42 percent said they are "extremely confident" that they will continue to have their job for the next 12 months, while another 35 percent said they are "very confident" they will keep their jobs in the coming year.

Also, 53 percent are hopeful they will receive a raise in the next 12 months, with 53 percent either "extremely confident" or "very confident" they'll receive a pay hike during the next year. About one in four of the respondents said they are "not too confident" or "not at all confident."

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