Star Salomon Smith Barney analyst at center of telecommunications scandal resigns
Friday, August 16th 2002, 12:00 am
By: News On 6
NEW YORK (AP) _ An influential Wall Street stock analyst who touted shares of troubled companies like WorldCom and Global Crossing has resigned from Salomon Smith Barney amid mounting conflict-of-interest allegations.
Securities regulators are looking into the allegations against Jack Grubman, whose dual role as a stock picker and an adviser on mergers and other deals generated millions of dollars in investment banking fees for Salomon.
``The relentless series of negative statements about my work, all of which I believe unfairly single me out, has begun to undermine my efforts to analyze telecommunications companies,'' Grubman wrote in a letter to Michael Carpenter, the chief executive for Salomon Smith Barney.
Grubman, who resigned Thursday, defended his work at the company.
``I did my work as an industry analyst within a widely understood framework consistent with industry practice that is now being extensively second-guessed,'' he wrote.
Salomon, which is also being investigated, said Grubman's decision to resign was reached ``by mutual agreement.'' The investment firm remained steadfast in defending Grubman's integrity and rejecting charges of improper behavior by the analyst or the company.
Grubman, whose annual pay reportedly topped $20 million in recent years, recommended shares of many companies that were Salomon Smith Barney clients. Critics say those recommendations, which often sent stocks soaring, were used to reward companies that brought their investment banking business to Salomon.
He remained bullish on WorldCom and Global Crossing almost up until the time those companies landed in bankruptcy, scandalized by disclosures of deceptive accounting.
Some critics have also asserted that Grubman had inappropriate access to top management and inside information, noting that he downgraded his rating on WorldCom just days before that company's accounting scandal broke in June.
Grubman has been targeted by at least 40 consumer complaints and lawsuits, many of them related to the WorldCom collapse. Testifying before the House Financial Services Committee last month, said he had no idea that WorldCom executives hid billions in expenses from investors.
In his resignation letter, Grubman said he was hardly the only one who wrongly forecast soaring demand for telecommunications services.
``While I regret that I, like many others, failed to predict the collapse of the telecommunications sector and I understand the disappointment and anger felt by investors as a result of that collapse, I am nevertheless proud of the work I, and the analysts who worked with me, did,'' he wrote.