NEW YORK (CNN/Money) - The New York state attorney general is suing former WorldCom Inc. CEO Bernard Ebbers and four other telecommunications company executives, alleging they improperly profited from hot initial public offerings given in return for investment banking business.

Ebbers, along with the chairmen of Qwest Communications and Metromedia Fiber Networks, are among those that Eliot Spitzer, the New York attorney general, has charged with receiving IPO shares in exchange for steering their companies' banking business to Salomon Smith Barney.

Spitzer said he is seeking $28 million in profits defendants allegedly made by selling IPO shares.

"The CEO was personally bought off by being given IPO allocations," Spitzer said at a New York news conference. "Small investors were left holding the bag."

By seeking additional $1.5 billion from the sale of stocks in the defendants' respective companies, Spitzer also alleges that the executives unloaded stock and exercised option knowing their value was inflated by overly upbeat Wall Street research that came in exchange for investment banking fees.

The lawsuit is the latest effort to restore shattered investor confidence that has helped send U.S. stocks to multiyear lows. It also marks a turn in the investigations of Wall Street, which have mostly focused on whether research departments deceived investors with overly optimistic stock reports written to lure investment banking fees.

The Spitzer suit recalls a different era: 1999, when 117, or 23 percent, of the year's IPOs soared more than 100 percent in the first day of trading, according to WorldFinanceNet.com.

New York State Attorney General Eliot Spitzer comments on the suit filed against five telecom executives accused of improperly profited from hot IPO shares. Play video (QuickTime, Real or Windows Media)

In addition to Ebbers, Spitzer named Philip Anschutz, the chairman of Qwest Communications, Stephen Garofalo, the chairman of Metromedia Fiber Networks, Clark McLeod, the former McLeod USA CEO, and Joseph Nacchio, who formerly ran Qwest Communications.

"The claim that Joseph Nacchio steered business to Salomon Smith Barney in return for personal IPO allocations or favorable research reports is totally false," Charles Stillman, Nacchio's attorney said in a statement, adding that Spitzer brought the suit without giving Nacchio a chance to respond. "There was no special relationship between Qwest and Salomon Smith Barney."

A statement for the Anschutz Corp. also denied any wrongdoing, calling the suit "unfounded and absolutely without merit.

"Any decision relating to IPOs by The Anschutz Corp. was made by investment professionals with no involvement in Qwest's selection of investment bankers," said the statement. "Anschutz never personally received any IPO allocations."

Reid Weingarten, Ebbers' attorney, could not immediately be reached for comment. The suit alleges that between September 1998 and February 2002, more than 21 IPO share offerings were made to WorldCom officials, including Ebbers.

During the same period, Salomon Smith Barney obtained 23 investment banking contracts from WorldCom, generating $107 million in fees, the suit says.

Last month, a congressional committee released documents showing that Ebbers pocketed more than $11 million in profits from sales of IPO shares "spun" to his account at Salomon Brothers, a unit of Citigroup (C: Research, Estimates).

As for Qwest (Q: Research, Estimates), the suit alleges that between March 1996 and June 2001, 57 IPO offerings were given to company executives. The suit said Salomon earned $47 million in investment banking fees from Qwest. The company could not immediately be reached for comment.

Between November 1997 and October 2000, 37 IPO offerings were given to Metromedia Fiber's Garofalo, who allegedly made more than $1.5 million in profits. A Metromedia spokeswoman declined comment.

Salomon made more than $47 million from the company in the period, the suit alleges.

As for McLeod, between September 1997 and June 2000 executives received shares in 32 IPOs and made more than $9 million, the suit said. McLeod gave Salomon 16 deals in that time generating fees of $49 million. McLeod could not immediately be reached.

"We believe this is a crucial next step in revealing what was improper and getting money back to shareholders who lost money," said Spitzer."The question has become not so much was this an improper dynamic, but how do you fix it," Spitzer said.

The suit is the latest effort to reform a financial services industry amid the worst bear market in a generation.

Last January, Credit Suisse First Boston agreed to pay $100 million in fines to the Securities and Exchange Commission and the National Association of Securities Dealers for allegedly taking millions of dollars from customers in inflated commissions in exchange for allocations of initial public offerings. CSFB didn't admit or deny the charges against it.

Congress has asked executives at Citigroup, J.P. Morgan Chase (JPM: Research, Estimates) and Merrill Lynch (MER: Research, Estimates) to explain their financial ties to Enron, which filed for bankruptcy last December. And the Justice Department has gone after leaders at WorldCom, Tyco International and Adelphia Communications.

As for Spitzer, a Democrat said to be eyeing higher office, he earlier this year secured a $100 million settlement from Merrill Lynch after accusing the brokerage firm of hyping stocks to win investment banking business.

The question of biased research at investment banks has come up before at Salomon, where former telecom analyst Jack Grubman touted stocks even as the companies were headed toward bankruptcy.

Last week, the National Association of Securities Dealers fined Salomon $5 million and filed a complaint against Grubman for issuing misleading research reports on Winstar Communications Inc. Grubman resigned earlier this year.

Grubman's attorney issued a statement Monday saying the embattled former analyst had no influence on the distribution of IPO shares at Salomon, and again defending his research during his time with the firm.

"The suggestion in the complaint that Grubman's research was somehow altered to help enrich executives who received IPO allocations or to obtain their investment banking business is categorically false," said the statement.

Down 42.5 percent this year through Friday, shares of Citigroup (C: Research, Estimates) rose 63 cents to $29.65 Monday.

New York-based Salomon was not named in the suit. A Salomon spokeswoman said the firm would not comment on it "because we are in discussions with the New York Attorney General and federal regulators in an attempt to resolve all research and IPO allocation issues."

"We are moving aggressively to resolve questions about past practices and to institute far-reaching reforms," she added.

Securities analysts have said all the suits and congressional hearings could make banks and brokerage firms liable for millions of dollars in shareholder lawsuits.

Some of the disputed practices may have ended, at least for now, as the doling out of IPO shares would not be so easy these days. Investor demand for companies going public has all but dried up.