Star Salomon Analyst Grubman ResignsAug 16, 2002 | AP One of the most influential stock analysts and power brokers of the technology boom is leaving Salomon Smith Barney amid investigations into his alleged conflicts of interest in touting the shares of WorldCom, Global Crossing and other failed telecommunications companies.
Jack Grubman, who submitted his resignation Thursday, reiterated his frustration with the mounting attacks on his dual role as a stock picker and an adviser on mergers and other deals that generated millions of dollars in investment banking fees for Salomon.
"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 Michael A. Carpenter, the chief executive for Salomon Smith Barney, a subsidiary of Citigroup.
The investment firm said the decision to resign was reached "by mutual agreement," but remained steadfast in defending Grubman's integrity and in rejecting charges of improper behavior by the analyst or Salomon Smith Barney.
"Jack and I agree that recent events have made it difficult for him, both personally and professionally, to stay in a job and industry that we know are important to him," Carpenter wrote in a letter to employees. There was no mention of the ongoing investigations of Grubman and the firm being conducted by the government and the securities industry.
Grubman, whose annual pay reportedly topped $20 million in recent years, was unwavering in his recommendations of many high-flying companies who were also Salomon Smith Barney clients.
Critics charge that those positive ratings, which often sent stocks soaring, were used as a reward for companies that brought their investment banking business to Salomon.
The most notable of those companies were WorldCom Inc. and Global Crossing, which he remained bullish on almost up until the time that those companies landed in bankruptcy, scandalized by disclosures of deceptive accounting.
Some critics have also asserted that Grubman had inappropriate access to top management and inside information, noting that the analyst downgraded his rating on WorldCom just days before that company's accounting scandal broke in June.
In his resignation letter, Grubman also pointed out that he was hardly the only one whose prognostications about soaring demand for telecommunications services were all wrong.
"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.
He also bristled that it had become impossible to continue his research amid a "constant barrage of unsubstantiated, negative reports" in the media.
Grubman has been targeted by at least 40 consumer complaints and lawsuits, many of them related to the WorldCom collapse.
Testifying before the House Financial Services Committee last month, said he had no idea that WorldCom executives hid billions in expenses from investors.