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Grubman WorldCom Link Haunts Salomon

Aug 21, 2002 | FT.Com

A Congressional committee has broadened its investigation of Salomon Smith Barney and its former telecommunications analyst, Jack Grubman, to explore their ties to Global Crossing, the bankrupt telecoms company.

Michael Oxley, chairman of the House Financial Services Committee, sent a letter on Wednesday to Citigroup, Salomon's parent company, requesting Mr Grubman's research reports on Global Crossing, records of any board meetings he attended there, and other materials.

Mr Oxley also asked for information about any initial public offerings Salomon might have awarded to Global Crossing executives at below-market prices.

This latter request suggests that investigators are focusing their probe on a practice known as spinning, which was wide-spread on Wall Street during the bull market. It involved handing out shares of sought-after IPOs to top executives with the hope that they would later repay the bank with their company's investment banking business.

The letter is another example of the scrutiny being directed at Salomon and Mr Grubman for their close ties to telecom companies that paid them hundreds of millions of dollars in banking fees during their rise in the late 1990s and later crashed into bankruptcy and scandal.

Congress and the National Association of Securities Dealers have already been investigating whether Mr Grubman and Salomon gave shares of hot IPOs to Bernie Ebbers and other former-top executives at WorldCom, another bankrupt telecom company that was a major banking customer.

Meanwhile, Eliot Spitzer, the New York attorney-general, is targeting Mr Grubman as he wraps up an investigation into conflicts of interest in Wall Street stock research.

Mr Grubman's lawyer did not return calls. The former star analyst left Salomon last week with a $32m severance payment. He was once considered one of the most powerful analysts on Wall Street. But his credibility among investors suffered because he also advised companies on deals.

Salomon said it would continue to co-operate with the committee's inquiry. It has previously denied any improprieties in the way it allocated IPOs.

Mr Oxley also sent a letter to Gary Winnick, the former chief executive of Global Crossing, who made more than $500m from selling stock before the company filed for bankruptcy in January.

Global Crossing's market capitalisation was once more than $40bn. Earlier this month, creditors agreed to sell its assets to a consortium of Hutchison Telecommunications and Singapore Technologies Telemedia for $250m.

The committee is demanding records of contacts with stock and bond analysts, including Mr Grubman, and an accounting of all benefits and compensation paid to directors. They are also asking for records relating to the recent asset sale.

Salomon and Global Crossing were given until September 4 to respond.

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