Salomon Smith Barney and analyst Jack Grubman were sued Friday for allegedly misleading investors by urging them to buy stock in a now-bankrupt telecommunications company.
The lawsuit, filed in federal court in Manhattan, seeks class certification for investors in Winstar Communications Inc. It did not name a damage amount.
The suit alleges Grubman, one of Wall Street’s most influential analysts, defrauded investors with his recommendations for Winstar, operator of a wireless network providing high-speed Internet access to office buildings. The company filed for bankruptcy protection in April 2001 with some $5 billion in debt.
Grubman “recommended that investors purchase Winstar stock and set target prices for the stock without any reasonable factual basis,” the suit alleged. It also accused the defendants of failing “to disclose significant conflicts of interest which they had considering their use of Grubman’s reputation and his Winstar analyst reports to obtain banking business for Salomon Smith Barney.”
Grubman also has come under fire from Congress for promoting WorldCom stock while his investment firm did business for the company. Salomon Smith Barney has been named in other suits stemming from Wall Street accounting scandals.
Both the brokerage and Grubman have denied the accusations.