Telecom Analyst Jack Grubman Resigns

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.

by Brian Morrissey of internetnews.com [August 19, 2002]

Jack Grubman, who came to epitomize for many Wall Street's shady research practices, left of his own accord, but executives at Salomon Smith Barney 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, 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 the possibility 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. In that crash, Merrill Lynch's former Internet analyst, Henry Blodget, went from being a constant presence on CNBC to public vilification, as 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 pay 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 backed away from an actual apology.

"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.

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