A former junior analyst at Salomon Smith Barney Inc., who claims he was fired for refusing to issue an upbeat research report, has filed a $100 million lawsuit against the firm.
Kenneth Boss, who was fired by Salomon in June, contends he was pressured by two investment-banking colleagues and his supervisor to alter the report’s bearish sentiment on several office-furniture companies.
Boss claims in the suit that his colleagues were “visibly dismayed and angered” after reading his draft report and demanded that the “neutral” ratings assigned to Steelcase Inc. and Interface Inc. be upgraded to “buy.”
“It is common practice for Salomon Smith Barney to use the carrot of positive research coverage in order to secure lucrative investment banking business,” he says in the suit, filed last week in Manhattan federal court.
A Salomon spokeswoman said the claim is “without merit.” The firm had circulated a memo in August to its employees, noting “the facts show the associate was fired for poor performance and failure to meet a ‘last chance’ deadline, not because he resisted investment banking pressure.”
Boss claims he was pressured in late June, a few weeks after Salomon announced it would adopt changes to ensure objective analyst research.
The Salomon memo notes that Boss’ draft report, while “woefully incomplete,” should not have been shown to anyone in the investment-banking business. The individuals violated the company’s newly adopted policy and have been disciplined, according to the memo.
The former analyst says he was fired June 27 and offered a severance payment of $24,230, which he did not accept. He later complained to Salomon’s general counsel and the New York State Attorney General’s office, which has led a high-profile investigation into Wall Street research practices.
On Monday, Salomon agreed to pay a $5 million fine to the National Association of Securities Dealers to resolve allegations that it issued misleading reports in 2001 on Winstar, a telecommunications company. The NASD also filed a complaint against the report’s authors, former star analyst Jack Grubman and his assistant, Christine Gochuico.
In the past year, securities firms have been widely criticized for issuing overly bullish research on companies that provide investment-banking fees to the firm. Many investors say the abuses helped lead to the crash-and-burn of Internet stocks.
In May, New York State Attorney Eliot Spitzer fined Merrill Lynch & Co. $100 million for allegedly issuing misleading research. Following that settlement, Salomon said it would adopt changes within its research department.