Salomon Telecom Analyst Jack Grubman Resigns

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With the telecom industry he once touted so highly battered by bankruptcies
and accounting scandals, onetime star telecom analyst Jack Grubman resigned
from Salomon Smith Barney late Thursday.

Grubman, who came to epitomize for many Wall Street’s shady research
practices, left of his own accord, but executives at Salomon were reportedly
unhappy with the negative press Grubman had brought the firm.

Grubman came into the spotlight for his relationship with WorldCom, which he
consistently rated highly in his research, only downgrading its stock to
“neutral” after it lost 90 percent of its value. Subsequently, Salomon was
embarrassed by revelations of Grubman’s cozy relationship with WorldCom
executives, including sitting in on meetings of the company’s board of
directors.

In his resignation letter, Grubman painted himself as a scapegoat for an
industry that has been beset by innumerable problems.

“The relentless series of negative statements about my work, all of which I
believe unfairly single me out, has begun to undermine my efforts to analyze
telecommunications companies,” he wrote.

Citigroup , which is the parent company of Salomon, faces
further investigations into its conduct during the go-go market boom of the
late 1990s. The National Association of Securities Dealers is investigating
whether Citigroup rewarded investment-banking clients with shares in hot
initial public offerings (IPOs).

While Grubman is not known to be a target of that investigation, Wall Street
firms have come under intense criticism for the close relationship between
their research and underwriting arms, with some accusing them of skewing
their research to win lucrative investment-banking business.

Congress called Grubman to testify last month, when it held hearings on
WorldCom’s demise. Congressmen questioned the analyst about whether he
rewarded WorldCom execs with IPO shares.

Grubman said he could not remember specifically, but he could not rule out
that WorldCom executives received the shares.

The rise and fall of the 48-year-old Grubman follows that of other star
analysts from the technology-driven market frenzy.

The telecom industry meltdown, which has seen many former high-flying
companies end in bankruptcy, has mirrored the earlier dot-com crash.
Similarly, Merrill Lynch’s former Internet analyst, Henry Blodget, went from
constant presence on CNBC to public vilification, after many of the tech
stocks he so famously pushed fizzled after the dot-com bubble burst. Blodget
came under fire by New York Attorney General Elliot Spitzer for privately
calling stocks “junk” and “crap”, while publicly remaining positive about
the stock’s prospects. Merrill agreed to a $100 million fine in May to
settle the New York case, but it still faces a host of private lawsuits over
its research practices.

Spitzer has subpoenaed records from other major Wall Street investment
houses, including Salomon.

Grubman’s resignation letter sidestepped direct blame, but struck a somewhat
conciliatory note to the furor caused by his stock recommendations.

“While I regret that I, like many others, failed to predict the collapse of
the telecommunications sector and I understand the disappointment and anger
felt by investors as a result of that collapse, I am nevertheless proud of
the work I, and the analysts who worked with me, did,” he wrote.