WorldCom E-mails ReleasedSep 3, 2002 | CNN/Money Telecom analyst Jack Grubman told WorldCom that his former employer, Salomon Smith Barney, was about to turn negative on the long-distance provider's shares, according to e-mail released by a congressional panel investigating WorldCom's collapse.
The House Committee on Financial Services released an e-mail from Grubman to Scott Sullivan, WorldCom's former CFO, and Scott Hamilton, who heads WorldCom's investor relations department.
In it, Grubman on the morning of March 12 said Salomon Smith Barney's equity strategist Tobias Levkovich was about to take WorldCom off the investment bank's "recommended list."
"This is our strategist, not us. Which is why I hate ever having a name on that list," the e-mail from Grubman states.
Grubman's note was not illegal. But it may offer insight into the kind of relationship that Grubman had with officials at companies he covered.
A lawyer for Grubman was not immediately available for comment, according to Reuters, which reported that a Salomon spokeswoman said the practice of informing a company about a rating change was appropriate.
Grubman, who resigned from Salomon last month, has been criticized for recommending shares of telecom stocks like WorldCom even as they tumbled. In July, WorldCom filed for the largest bankruptcy in history after saying it had inflated profits by hiding more than $3.8 billion in expenses.
Amid a two-year bear market, investors have come to distrust the objectivity of research published by analysts who work for investment banks that are trying to win underwriting and advising business.
22 Million Customers
The Financial Services Committee also released a series of other e-mails detailing Sullivan's response to negative WorldCom Wall Street Journal reports published before the company's bankruptcy.
In the e-mails to several people inside the company, Sullivan essentially defends the financial condition of WorldCom, saying in one note that the company with "22 million customers" and "$7 billion in annual operating cash flow" is much different from McLeod USA, which had already gone bankrupt.
A federal grand jury indicted Scott Sullivan and another former WorldCom executive last week on seven counts of securities fraud, conspiracy to commit fraud, and filing false statements with the Securities and Exchange Commission.