Beseiged Analyst Grubman ResignsAug 16, 2002 | Bloomberg News
Salomon Smith Barney Inc. telecommunications analyst Jack Grubman, who is under investigation by Congress and government agencies for potential conflicts of interest, resigned, the company said.
Grubman, one of the most prominent analysts in the country, will receive $32.2 million in severance, including forgiveness of $19 million in a loan he received in 1998, plus interest, people familiar with the matter said. He will receive $12 million in restricted stock and options that he had received as previous compensation, the people said.
Grubman's lawyers also negotiated a cash payment of $1.2 million over the next 18 months. This represents the remaining compensation on his five-year contract, which was to end in September 2003, and a provision for legal fees, the people said.
Grubman, 48, resigned after being under scrutiny for his recommendations on WorldCom Inc. and other companies whose share prices collapsed. The companies were clients of Salomon Smith Barney, the securities arm of Citigroup Inc.
Members of Congress grilled Grubman last month in hearings about WorldCom's admission that the company inflated its earnings. Grubman, who admitted attending WorldCom board meetings, said he hadn't known of the accounting tricks. Federal and state regulators are probing whether the firm won investment-banking fees with favorable stock recommendations and IPO shares for top executives. The Justice Department also has said it is conducting a criminal inquiry.
''He was stained and I don't think there was any way to get it off him,'' said Jose Romero, a telecommunications analyst at Safeco Asset Management Co., which sold its stake in WorldCom this year. ''He was playing both sides of the fence - banker and analyst. I don't think anything got done [at Salomon Smith Barney] without him. He had a lot of power in his heyday.''
On Tuesday, Citigroup received a congressional subpoena demanding documents on any role Grubman may have played in allocating the initial public offering shares to WorldCom executives.
The House Financial Services Committee, which issued the subpoena, is investigating whether Grubman helped favored executives obtain IPO shares in return for investment-banking business given to Citigroup's Salomon Smith Barney Inc. unit. A committee spokeswoman said the subpoena followed an inadequate response from Citigroup to a voluntary request for information.