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WorldCom Investors to Complain to NASD

Jan 13, 2003 | AP In an unusual move, a group of small investors who say they lost their life savings because of Wall Street analyst Jack Grubman's puffed-up stock rating for WorldCom Inc. are taking their complaints en masse to the security industry's watchdog group.

The group of more than 100 investors are filing an arbitration claim Monday with the National Association of Securities Dealers, said Robert Weiss, the investors' attorney. Weiss said his securities firm could handle up to 100,000 similar claims.

The investors each lost less than $25,000 in WorldCom's financial meltdown, which ended in bankruptcy last year, Weiss said Friday.

"These are not wealthy people. These are real, Main Street people, retirees who did not have big portfolios, and they lost everything they had because they relied on this research," he said.

Claims presented to the NASD for arbitration are generally considered individually, and it would be unusual for a large number of related cases to be presented at once, said Linda Fienberg, president of the group's dispute-resolution program.

Grubman helped send WorldCom stock soaring by giving it high "buy" ratings even as the company stumbled early last year. Weiss maintains his clients purchased WorldCom stock based on recommendations Grubman made as an analyst for Citigroup's Salomon Smith Barney brokerage unit, and did not understand the risks.

WorldCom filed for bankruptcy protection in July, nearly collapsing under a far-reaching accounting scandal that cost investors more than $7.5 billion. The Justice Department and the Securities and Exchange Commission are investigating the accounting abuses, which have led to criminal charges against several former top executives.

Last month, the nation's biggest brokerage firms agreed to pay $1.44 billion to resolve government charges they gave biased stock ratings and promised to change the way they do business. Salomon Smith Barney was to pay the heaviest fine: $300 million. The settlement did not make clear how investors would be compensated for their losses.

"There is a tremendous debt that is owed from Wall Street to Main Street as a result of this fraud," Weiss said, adding that he believes his clients are owed 100 percent of their lost funds.

Under almost all brokerage account contracts, investors agree to attempt to settle claims through arbitration, instead of taking them to court.

Most claims presented to the NASD for arbitration involve larger sums and are heard by a panel, Fienberg said. Claims for less than $25,000 usually are considered by a single public arbitrator who issues a decision based on evidence, unless the investor requests a hearing.

Grubman quit Salomon Smith Barney in August. The NASD fined the brokerage $5 million to settle charges that his research was misleading and filed a complaint against Grubman.

Grubman's attorneys did not immediately comment. His former brokerage declined comment on the claims.

"We can't comment on a claim that has not been filed, except to say we take all client claims very seriously and review each on its own merit," spokeswoman Susan Thomson said Friday.

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