New York Financial Planning Newsroom

Court Finds Telecom Exec Liable In Stock Spinning Case

In a precedent-setting decision, Justice Richard B. Lowe of State Supreme Court in Manhattan held that Clark McLeod, the former Chairman and CEO of McLeodUSA, fraudulently failed to disclose his participation in a stock "spinning" scheme with an investment bank, Salomon Smith Barney (SSB). Spinning is the practice by which investment banks give executives shares of hot IPOs as an inducement to generate or retain underwriting business.

Describing the scheme as a "sophisticated form of bribery," the court found that McLeod had received 34 IPO stock allocations from SSB, which he sold for a personal profit of $9.96 million. During the same period, SSB received more than $77 million in underwriting business from McLeodUSA, which eventually went bankrupt in 2002.

Justice Lowe held: "In light of the fact that McLeod has admitted that he sought and received ‘hot IPO’ stock allocations on multiple occasions and did not make any disclosures on any of those occasions, the court finds that he has engaged in ‘repeated’ and/or ‘persistent’ fraudulent acts in violation of the [State Executive Law] …."

Justice Lowe also found that McLeod’s non-disclosures were fraudulent under the Martin Act "because they clearly ‘tend[ed] to deceive or mislead the purchasing public…." Read more at state.ny.us

Contact New York Financial Planning Professional