Embattled telecoms analyst Jack Grubman and securities powerhouse Salomon Smith Barney have parted ways - but they're still wedded at the hip by their legal troubles.
Both Mr Grubman and Citigroup's Salomon unit are under siege from investors, regulators, and others angry that Mr Grubman, Salomon's former star telecoms analyst, boosted shares of many now-bankrupt telecoms companies, including WorldCom.
"I don't think Grubman's leaving is going to change the legal climate for Salomon," said Mr David Ruder, a professor of law at Northwestern University School of Law and former SEC chairman, yesterday.
Mr Grubman is leaving Salomon by "mutual agreement" with a severance package worth about $32.2 million (€32.74 million), and reassuring words from Salomon's chief executive that he has conducted himself in accordance with legal and ethical standards.
At issue is whether Mr Grubman intentionally made overly bullish pronouncements on telecoms stocks to win lucrative merger advisory work and security sales for Salomon's investment bankers. Salomon pulled in hundreds of millions of dollars in such fees, and many of Mr Grubman's stock picks are now in bankruptcy court.
Salomon has vehemently denied Mr Grubman tailored his research to win banking business. The firm, along with Wall Street rivals, this year has adopted reforms to its research department, including decoupling analyst pay from investment banking business.
But investors want blood, and politicians and regulators are eager to accommodate them. So probes into Mr Grubman and Salomon are unlikely to fade away.
When New York State Attorney General Eliot Spitzer brought charges against Merrill Lynch & Co internet analysts earlier this year, he focused on the conduct of Mr Henry Blodget, who had already left Merrill.
Indeed, Mr Spitzer expanded his probe of analyst practices to include other top Wall Street firms, including Salomon. In fact, several regulators have said he may make an announcement with respect to Salomon and Mr Grubman in the next few weeks.
The National Association of Securities Dealers (NASD), the regulatory overseer for the Nasdaq Stock Market, is also looking into Mr Grubman's actions.
The US House Financial Services Committee has said it will subpoena documents from Citigroup for information on whether Salomon gave Mr Grubman's clients preferential treatment in distributing potentially-underpriced shares in initial public offerings. Also, class-action lawyers have sued Salomon and Mr Grubman, contending he issued misleading research.
For their part, Mr Grubman and Salomon are in agreement that he issued his stock picks in good faith. - (Reuters)
