CIBC hit with insider-trading lawsuit

A group of junk-bond executives who worked for CIBC in the United States, and who had previously worked with Global Crossing's founder, jump-started the bank's involvement…The suit claims the bank wanted to divest its position "anonymously," so it would not alert other investors that Global Crossing's main underwriter was "dumping stock."

The Globe and Mail
June 21, 2006

CIBC hit with insider-trading lawsuit
Bank knew fibre-optics firm was failing, trustee for Global Crossing creditors says
Sinclair Stewart

The Canadian Imperial Bank of Commerce and dozens of its affiliates were hit yesterday with a $2-billion (U.S.) lawsuit that accused them of participating in a "multiyear scheme" to profit from the sale of shares in telecommunications company Global Crossing Ltd.

The insider-trading allegations could represent yet another black eye for CIBC, which is trying to turn the page on what has been a bruising few years.

The country's fifth-largest bank paid $2.4-billion last summer to settle a class-action suit by investors at Enron Corp., and before that paid $125-million to settle its alleged involvement in a U.S. mutual-fund trading scandal.

Yesterday's legal salvo, filed by a trustee representing Global Crossing creditors, claims that CIBC and several related companies engaged in insider trading of the fibre-optics company's shares. The suit contends CIBC and others made roughly $2-billion in profit from this trading, even though they allegedly knew Global Crossing was in poor financial health. Many of these related companies were controlled by former CIBC executives.

"While the defendants were making a fortune from insider trading because the company's financial statements were manipulated to appear robust, in truth many of Global's operations were struggling and the company was at all relevant times insolvent," alleged the suit, filed in a New York bankruptcy court.

It claimed that a handful of CIBC employees, who were appointed to Global Crossing's board of directors, "knew of the misstatements of Global's revenues, assets and obligations," and that these misstatements eventually helped push the company into bankruptcy in 2002.

A CIBC spokesman declined to comment on the matter.

Global Crossing was an undisputed cash cow for CIBC, and heralded as the bank's single most successful merchant-banking victory. In late 1996, the bank paid $38-million for a 38-per-cent stake in the upstart fibre-optics carrier; less than 1½ years later, when the company launched its initial public offering, the bank's stake was worth nearly $1-billion.

A group of junk-bond executives who worked for CIBC in the United States, and who had previously worked with Global Crossing's founder, jump-started the bank's involvement. Five of these executives served on Global Crossing's board, but the last of them retired in 2000, when CIBC sold $710-million worth of its stock. The suit claims the bank wanted to divest its position "anonymously," so it would not alert other investors that Global Crossing's main underwriter was "dumping stock."

The CIBC executives who sat on Global Crossing's board "acted together with others to repeatedly violate their fiduciary duties of loyalty to Global," the suit said.

CIBC helped take Global Crossing public, and over the years it received $58.7-million from the company from investment banking and advisory fees, according to the suit.

Global Crossing emerged from bankruptcy protection in 2003. The trustee says creditors still have more than $6-billion in outstanding claims.


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