(Adds background on IPO investigations, Anschutz)
By Jake Keaveny
NEW YORK, April 17 (Reuters) - Colorado billionaire Philip Anschutz is in talks with the New York Attorney General's office to settle charges that he made millions of dollars at the expense of his shareholders, according to people familiar with the talks.
Anschutz, the founder and largest shareholder of Qwest Communications International Inc. , and four other former telecommunications executives were charged last September with illegally profiting from initial public offerings managed by the investment banking arm of Citigroup Inc.
The executives were also charged with profiting from overly bullish stock ratings that were issued by Citigroup analysts, including former telecommunications star Jack Grubman, in order to win investment banking business.
Settling the case would be a victory for New York Attorney General Eliot Spitzer. Anschutz allegedly profited most among the executives charged, and a settlement could pressure the other defendants to do the same.
Other defendants are Bernard Ebbers, former chairman of bankrupt telecom WorldCom Inc. ; Stephen Garofalo, chairman of Metromedia Fiber Networks; former McLeod USA CEO Clark McLeod; and former Qwest CEO Joseph Nacchio.
"Spitzer obviously hopes to bring about a domino effect," said Christopher Bebel, partner at Shepherd Smith & Bebel PC who is a former federal prosecutor. "He puts himself in a good position to arrange for that."
Talks between Bruce Black, who represents Anschutz for Denver firm Holme Roberts & Owen LLC, and a team headed by Eric Dinallo, Spitzer's lieutenant in charge of investor protection, are in the advanced stages, the people familiar with the discussions said.
Jim Monaghan, a spokesman for Anschutz's investment vehicle The Anschutz Company, had no comment. New York Attorney General's office spokesman Darren Dopp would not comment on Anschutz's case but said "our office is always looking for ways to satisfactorily settle cases."
SPINNING
Anschutz, 63, allegedly made $4.8 million from preferential allocations of shares in 57 IPOs -- a practice known as "spinning."
Anschutz made another $1.4 billion from selling stock in Qwest at prices that were allegedly inflated by overly optimistic research reports. During the period in question Salomon Smith Barney, Citigroup's investment bank, made $37 million in fees from Qwest, according to the complaint.
Spitzer, who has led multiple probes into Wall Street practices during the boom market, has said he wants the executives to disgorge their profits because their relationship with Salomon Smith Barney should have been disclosed to shareholders.
However, Spitzer's office is said to be mainly concerned with proceeds made from IPO spinning -- which in Anschutz's case accounts for a small fraction of his total profits. A settlement could be used as a model in other cases.
Spitzer's investigations have spurred other regulatory agencies to probe whether banks inappropriately allocated shares in IPOs that often more than doubled in their debuts. Wealthy clients would allegedly pay outsized trading commissions, or offer mandates to manage lucrative investment banking deals.
The NASD and New York Stock Exchange issued new regulations last year that explicitly prohibit allocating shares in IPOs to executives of companies in positions to approve investment banking mandates.
Separately, the Securities and Exchange Commission is investigating Morgan Stanley , Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. for allegedly awarding shares in hot IPOs to clients who signaled plans to buy additional shares at higher prices.
Two key issues in the Anschutz case are said to be the amount of the disgorgement and to whom the money would be paid. One option could be to surrender the profits directly to Qwest stockholders. Another could be to give the money to charity.
PRESSURE TO SETTLE
Settling the case would take pressure off Spitzer's office. The investor protection unit is lightly staffed, and bringing the case to trial could take thousands of hours.
Anschutz, a self-made man worth more than $4 billion, would have clear benefits from putting his case to rest, say legal experts. Spitzer's cases have become high profile, and unlike executives like Ebbers and Garofalo, whose fortunes have been closely tied to the downfall of the telecommunications industry, Anschutz owns stakes in a string of businesses and is an active philanthropist.
The businessman's holdings range from cattle ranches to shares in Union Pacific rail to half a dozen professional hockey teams in Europe. He was ranked the No. 36 in Forbes magazine's list of the world's wealthiest men last year, down from No. 6 in 2000.
"What does he gain from messing with the biggest dog on the street?" said Marvin Pickholz, a defense lawyer and former enforcement chief at the Securities and Exchange Commission.