NU Online News Service, Oct. 15, 10:45 a.m. – A complaint filed by New York State Comptroller H. Carl McCall names Travelers Property Casualty Corp., Hartford, for allegedly making loans totaling $679 million to former WorldCom chief executive officer Bernard J. Ebbers.
The loans allegedly tied Ebbers' financial interests more closely to those of Travelers Insurance, an operating arm of Citigroup, which, McCall charges, may have influenced Salomon Smith Barney LLP's ratings of the stock.
McCall, a Democrat who is running for Governor of New York, filed the lawsuit in his capacity as trustee of a state pension fund.
According to the complaint, filed Oct. 11, Travelers–Salomon's corporate sibling within Citigroup–made the loans to Ebbers just months before WorldCom selected Salomon to be lead underwriter for two bond offerings worth $17 billion.
As a result of the connections between these loans and Ebbers' WorldCom stock, Citigroup had a $679 million interest in maintaining the price of WorldCom stock through its analyst reports, the complaint charges.
McCall's complaint says the loans–allegedly used in part to purchase 460,000 acres of land in Alabama, Tennessee and Mississippi–were allegedly backed by Ebbers' holdings in WorldCom stock, rather than being secured by the real estate purchased with the funds.
Travelers says in a statement that it is one of several insurance companies that participated in a syndicated loan to Joshua Timberland dating back to 1999.
"Travelers Property Casualty's portion of the loan is approximately $52 million and is part of our more than approximately $33 billion in invested assets," the company says. "The loan is fully collateralized by timber properties and contracts and is continuing to perform. WorldCom stock is not and was not part of the collateral."
According to a published report, Citigroup has said three other major insurance companies also took part in the loans to Joshua Timberland. The report identifies the other companies as Metropolitan Life Insurance Co., New York, John Hancock Financial Services Inc., Boston and the Farm Credit System, a government-sponsored entity based in McLean, Va.
John Hancock says in a release responding to the published report that it loaned $200 million to Joshua Timberland as part of an approximately $500 million syndicated loan originated by Travelers Insurance Company.
