Spitzer Inquiry Quizzes Salomon StaffAug 7, 2002 | FT.Com
Eliot Spitzer, the New York attorney-general, is interviewing Salomon Smith Barney research analysts and investment bankers as he wraps up his investigation of the firm and of Jack Grubman, its star telecommunications analyst.
Mr Spitzer's team has been conducting the interviews to bolster a possible case against Mr Grubman for conflicts of interest in his stock research. The substance of these interviews is likely to determine whether or not Mr Spitzer pushes for criminal charges against the firm and Mr Grubman for securities violations, or goes for an out-of-court settlement such as the one he agreed with Merrill Lynch in May, according to people close to the investigation.
They say his team has not found any "smoking gun" e-mails at Salomon similar to those he unearthed that showed Merrill's internet analysts privately disparaging companies they were publicly touting for investors.
Instead the team is relying on a constellation of materials to build a case, including employment contracts and internal memos.
That is why the interviews with current and former Salomon employees could be crucial in determining the strength of the evidence.
The investigation is wrapping up as doubts have emerged about a whistle-blower who appeared to be a key figure in any possible case against Mr Grubman and Salomon.
David Chacon, a former broker in Salomon's Los Angeles office, had alleged in a wrongful termination suit that Mr Grubman oversaw a scheme where the firm awarded shares of sought-after IPOs to top telecoms executives like Bernie Ebbers of WorldCom in exchange for their companies' investment banking business.
The allegations led Congressman Paul Kanjorski to grill Mr Grubman during recent Congressional hearings and to call for a full investigation of Salomon's IPO practices.
But after questioning Mr Chacon on the issue, Mr Spitzer's team has determined is not a credible witness, people close to the investigation said.
Salomon has stenuously denied any impropriety, and said that Mr Chacon was fired for stealing commissions and unauthorised trading.
The Financial Times previously reported that the broker's initial complaint against Salomon focused on racial discrimination, scarcely mentioning any IPO abuses.
Mr Chacon could not be reached for comment. He has turned in his resignation at Credit Suisse First Boston, his current employer, and is trying to negotiate the terms of his departure.
Mr Spitzer's office declined to comment on who they were interviewing at Salomon. The firm also declined to comment.
The attorney general deposed top Merrill executives, such as Henry Blodget, the former internet analyst, and Andy Melnick, the former head of research, as part of a probe that resulted in a $100m settlement agreement with the firm in May over conflicts of interest in its equity research.At the the heart of that case were the emails Mr Spitzer unearthed.
Mr Spitzer is also investigating Morgan Stanley, although that probe is not as far advanced.