Star Salomon Analyst At Center Of Telecom Scandal ResignsAug 21, 2002 | AP
A powerful telecommunications analyst for Salomon Smith Barney has quit amid growing controversy over his alleged conflicts of interest in touting the shares of WorldCom, Global Crossing and other fallen companies.
Jack Grubman, whose research reports once sent stocks soaring, is now under investigation for his unwavering recommendations for companies that were also paying millions of dollars to his firm for investment banking 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," Grubman wrote in a letter to Michael Carpenter, the chief executive for Salomon Smith Barney.
In a letter to employees Thursday, Carpenter defended Grubman's work and integrity, but made no mention of the investigations by the government and the securities industry. Carpenter said "we believe that ... he always wrote what he believed and conducted himself professionally and in accordance with legal and ethical standards."
Grubman has been targeted by at least 40 consumer complaints and lawsuits, many of them related to the WorldCom collapse.
Grubman remained bullish on WorldCom and Global Crossing almost until the time those companies landed in bankruptcy, scandalized by disclosures of deceptive accounting.
Testifying before the House Financial Services Committee last month, Grubman said he had no idea WorldCom executives hid billions in expenses from investors.
On Thursday, Grubman reiterated that his role was part of a long-accepted way of doing business on Wall Street. He also bristled that it had become impossible to continue his research amid a "constant barrage of unsubstantiated, negative reports" in the media.
"I did my work as an industry analyst within a widely understood framework consistent with industry practice that is now being extensively second-guessed," Grubman said in his letter to Carpenter. "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."