University trustee and eBay CEO Meg Whitman '77, whose $30 million contribution to the University will enable it to build a sixth residential college, got preferred access to and made quick profits on initial stock offerings because of eBay's relationship with investment bank Goldman Sachs, congressional investigators have said.
A spokesman for Whitman, Kevin Pursglove, declined to comment yesterday on the allegations, and a Goldman Sachs representative denied the charges.
University spokeswoman Lauren Robinson-Brown '85 also declined to comment last night.
As part of a larger investigation into corruption and collusion on Wall Street, House Financial Services Committee Chairman Michael Oxley (R-Ohio) released on Wednesday the findings of his look at ties between investment banking firms and their clients and the effects of these ties on average investors. He particularly examined whether corporate directors gained access to initial public offerings as a reward for investment banking business.
The committee asserted in a press release that Whitman got access to and "flipped shares for quick and easy profits."
"While not illegal, the practice can artificially inflate the share price for any given IPO on a temporary basis," it said. "As a result, small investors gaining access later in the process were more likely to be left with the losses in companies that, in many cases, never recovered." "Knowingly and willfully underpricing stock offerings is a violation of federal securities law because the market manipulation can be done purposely in order to reward initial investors," the statement continued.
Whitman made $1.78 million on her IPO trades, according to financial news channel CNBC. Whitman also sits as a Goldman Sachs director and a member of the bank's compensation and audit committees. Goldman Sachs brought eBay public and was the banker for eBay in its acquisition of electronic commerce site PayPal, which was completed yesterday.
The committee also alleged that three other officers at eBay and others at 20 major U.S. corporations engaged in similar practices. The list included William Clay Ford '79, formerly of Ford Motor Co.
"These initial public offerings seemed to be anything but public," said Richard Baker (R-La.), Capital Markets Subcommittee chairman. "A small circle of preferred clients were given vast access by the investment banks to IPO shares and reaped large profits on the sale of these shares."
But Lucas von Praag, a Goldman Sachs spokesman, called the allegations "an egregious distortion of the facts."
"Investment bankers play no role in how shares are allocated and banking clients did not receive favored treatment," he said.
New York Attorney General Eliot Spitzer '81 (D) and SEC chairman Harvey Pitt vowed yesterday to investigate and punish abuses by investment banks.
While the value of many Internet corporations have fallen more than 90 percent in the bear market, eBay has only lost about 25 percent of its value. Its success contributed to making Whitman one of the wealthiest women in the world. EBay stock fell 2.7 percent yesterday.
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