The Regents - University of California | Office of The President
The Regents - University of California | Office of The President
The Regents - University of California | Office of The President
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House Committee on Financial Services on July 8, 2002, explained that companies<br />
will not use an investment banker if the analysts provide negative ratings.<br />
C. Grubman Was a Partisan Supporter <strong>of</strong> Salomon’s Investment<br />
Banking Clients, Including WorldCom<br />
194. Grubman was Salomon’s top telecommunications analyst until he left<br />
in August <strong>of</strong> 2002 with a severance package <strong>of</strong> $32 million. In 1999, Institutional<br />
Investor called him the “telecom analyst <strong>of</strong> the year.” Nicknamed, the “Ax,” he<br />
was the undisputed most influential analyst in the telecommunications industry,<br />
whose ratings could make or break a company. “When Grubman said wonderful<br />
things about a company, it was like a narcotic–everybody wanted it,” recalled<br />
Elliot Dorbian, a former broker at Salomon. “He walked around like he was a god.<br />
And it was perceived by the industry that he was a god.” Grubman was able to<br />
identify trends faster than anyone and was one <strong>of</strong> the most accurate in picking<br />
stocks that would increase in value. “‘Jack had great power. If he didn’t endorse a<br />
deal or a strategic direction, it wasn’t going to work,’ recalls a former telecom<br />
CEO who raised money during the boom. ‘But he held you hostage. In order to<br />
endorse the deal, he and Salomon had to get a major chunk <strong>of</strong> the banking<br />
business. He was very blatant. He would tell you what his expectations were in<br />
terms <strong>of</strong> investment banking for the firm.’” Fortune June 9, 2002.<br />
195. While Salomon held Grubman out to the investment community as an<br />
independent analyst who provided information about the company upon which the<br />
investing public could rely, in fact, Grubman was a partisan supporter <strong>of</strong> the<br />
companies so that Salomon and he could reap millions <strong>of</strong> dollars in rewards. He<br />
continued to tout stock even as the companies were experiencing severe financial<br />
difficulties. He gave favorable ratings to such companies as: Qwest, Multimedia,<br />
XO Communications, Metromedia Fiber Network and McLeod USA; companies<br />
which now are bankrupt or are facing substantial financial pressures.<br />
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COMPLAINT
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