Regulators have levied their first charges against former star telecom analyst Jack Grubman, but they’re only a hint of more serious charges expected in the coming weeks.
Negotiations between Grubman and the National Association of Securities Dealers, the regulatory arm of the securities industry, broke down over the weekend, leading to yesterday’s filing of charges that the former high-flying analyst misled investors about Winstar Communications.
Although the Grubman settlement talks failed, Salomon Smith Barney did settle NASD charges yesterday for $5 million without admitting or denying wrongdoing. The settlement, which only covers Salomon’s research on Winstar, is the third-largest settlement in the NASD’s history.
The NASD charged Grubman and his assistant, Christine Gochuico, touted beleaguered telecom Winstar with his highest recommendations in order to please execs at Citigroup’s Salomon Smith Barney investment bank, which earned $24 million in underwriting and advisory fees from the telecom firm.
Winstar continued to get top rankings from Grubman until days before the company filed bankruptcy in April 2001.
Grubman resigned in August, amid multiple investigations into possible conflicts of interest.
Gochuico is on leave from Salomon. Her attorney did not return calls for comment.
“The one group that should be pretty happy are the lawyers in the Winstar case,” said Michael Perino, visiting law professor at Columbia Law School. “They have admissions that the analysts’ statements were false and that the people making the statements were saying something very different privately.” Grubman’s lawyer, claims the NASD was too hasty.
“We are extremely disappointed that the NASD has chosen to ignore the merits of Jack Grubman’s coverage of Winstar and instead has rushed to file public charges that have no basis,” said Lee Richards, Grubman’s lawyer.
The Securities and Exchange Commission and the New York Stock Exchange are also looking to weigh in on the evidence against Grubman and Salomon Smith Barney regarding the Winstar research reports, sources close to those investigations said.
Moreover, the Justice Department and the New York Attorney General’s office are also probing Grubman’s and Salomon’s research.
Grubman has also been named in more than 48 shareholder complaints and lawsuits.
“Citigroup wants to resolve all these cases,” said a source close to the big bank. “It’s killing the stock.”
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