Meg Whitman
By Ken McLaughlinIn a clear attempt to distance herself from a growing Wall Street scandal, Meg Whitman said for the first time Tuesday that she regrets taking part in a now-outlawed stock-sale practice around the time she served on the board of Goldman Sachs.
Whitman had for years defended her participation in the much-criticized practice known as "spinning," which allowed company executives to buy stock shares at artificially low prices and immediately sell them at a higher price as companies went public. But with Goldman now a poster child for financial excess and Whitman the Republican front-runner for governor, she shifted ground Tuesday in an interview with The Associated Press.
"The lesson learned about it is you have to be extra vigilant about seeing any actual or perceived conflict of interest," Whitman said. "I missed the signposts here."
The admission from the billionaire former eBay CEO came as Congress blasted Goldman Sachs on Capitol Hill over what regulators called a misleading and risky mortgage-backed investment scheme that cost its investors.
It also came as Whitman endured renewed criticism from her political opponents over her Goldman ties and her profiting from spinning.
She told the AP the practice was part of the "normal course of business" at the time, but "as I look back on it, would I do it again? No." Whitman also said she "wasn't a good fit" on the Goldman board, so she resigned as a director in December 2002 after 15 months.
Although congressional investigators and many business ethicists at the time saw the practice as sleazy, it was common during the superheated dot-com era nearly a decade ago. Until spinning was banned in 2003, brokerage houses routinely allocated shares of hot IPOs — initial public offerings — to top executives as a reward for giving the investment firms corporate business.
In 1998, Whitman had hired Goldman to take eBay public. For the next four years, the investment bank allocated to her shares in more than 100 initial public offerings. All told, Whitman made a $1.78 million profit when she sold the stocks and was singled out in a congressional report that called the IPO system rigged and corrupt.
At the time, Whitman vigorously defended herself in an e-mail sent to eBay employees, saying she had always observed "the highest ethical standards.'' She called the allegations "painful.''
She explained she was given the opportunity to buy the IPOs because she was a "private banking client'' of Goldman Sachs and not because she was the chief executive of eBay. She also noted that her profits from the sale were a "small fraction'' of her personal holdings at Goldman Sachs.
After eBay shareholders sued Whitman, eBay founder Pierre Omidyar and former eBay President Jeffrey Skoll over the stock deals, the three agreed in 2005 to pay $3 million to settle the suit. Goldman kicked in an additional $395,000.
Whitman wrote in her recently released book, "The Power of Many,'' that half the proceeds of the settlement went to charity and half into eBay's coffers, after lawyers' fees were subtracted. In the book, Whitman said that the lawsuit had become a distraction and that she supported the spinning ban.
It was clear late Tuesday, however, that the controversy over Whitman's past IPO deals isn't going away any time soon, as spokesmen for her GOP opponent, Steve Poizner, and her presumed Democratic opponent, Jerry Brown, continued to excoriate her over the issue.
"Meg Whitman's stock spinning was unethical, is now illegal, and she is going to have to answer for the fact that she made a fortune from Goldman Sachs at the expense of financially suffering Californians,'' said Jarrod Agen, a spokesman for Poizner.
Sterling Clifford, Brown's spokesman, said: "Obviously she's sorry — she got caught. ... Just because something was a common practice on Wall Street doesn't mean it was the right thing to do.''
Tucker Bounds, Whitman's communications director, said "it's a shame'' the Poizner and Brown campaigns are "singing off the same song book.''
"Meg's personal wealth didn't come from Goldman Sachs,'' Bounds said. "It came from eBay.''
He also accused Brown of not being forthright about his role in an "interest rate swap'' that the city of Oakland renegotiated during Brown's tenure as mayor. The city paid off its debt, but Oakland is still paying Goldman Sachs $5 million a year for financing the deal, which runs through 2021.
"There are really questions surrounding this loan because it involved his sister's book of business,'' Bounds said, referring to the fact that Brown's sister, Kathleen, has worked for Goldman Sachs since 1999 and has overseen municipal finance portfolios since 2003.
"Jerry Brown hasn't said a word about it,'' Bounds said.
As for Whitman, political analysts said she has little choice but to ride out the Wall Street storm.
"I think she did all she could do — apologize, take responsibility and say she did not do anything illegal,'' said Barbara O'Connor, director of the Institute for the Study of Politics and the Media at Sacramento State. "But the average person doesn't have the sophistication to look at the nuances of the law. They don't sit on corporate boards, and they're not billionaires. They just want to know: 'If you made that kind of choice, can I trust you?' ''
Source: www.mercurynews.com
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