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NASD Slaps $5M Fine On Salomon

Sep 24, 2002 | Newsday

Securities regulators yesterday hit Citigroup subsidiary Salomon Smith Barney with a $5-million fine for misleading stock research and filed a separate complaint against the firm's former star telecommunications analyst, Jack Grubman.

The National Association of Securities Dealers' fine covers reports on Winstar Communications Inc.

Grubman strongly recommended Manhattan-based Winstar until a few weeks before it filed for bankruptcy last year. He left Salomon last month with a $32-million severance package.

Some securities lawyers scoffed at the size of the fine, even though it is the third-largest ever issued by the NASD.

"The amount is ridiculous considering the billions of dollars that were lost," said Jeffrey Liddle, a New York attorney representing several former Salomon brokers who worked with Grubman and have filed wrongful-termination lawsuits against the investment bank. "It's paltry. Citigroup makes about $16 billion annually and they only have to settle for $5 million?"

Salomon neither admitted nor denied wrongdoing in the settlement.

Salomon's research reports strongly recommended Winstar stock as a "buy" with a 12- to 18-month target price of $50, even as the shares fell from about $20 on Jan. 25, 2001, to 14 cents on April 17 of that year, the NASD said. Salomon agreed in the findings that it did not have a reasonable basis for a target price, the NASD said.

Chuck Prince, chief executive of the global corporate and investment bank at Citigroup, said in a memo to employees that the company was "pleased that the NASD has settled its inquiry."

The complaint against Grubman and his assistant Christine Gochuico said they recommended Winstar to investors in public but expressed contrary views in private. Both Grubman and Gochuico are contesting the NASD allegations.

From February 1999 to July 2001, Salomon earned $24 million for helping Winstar, one of its investment banking clients raise more than $5.6 billion. Salomon's reports touted Winstar while knocking analysts who were critical of the company.

The NASD is conducting other inquiries into Salomon research, and the firm and Grubman also are under congressional scrutiny.

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