Lead Plaintiff's Memorandum of Law in Opposition to Defendants'

ecasting it as positive news. 263. For example, Grubman told investors that massive layoffs at
WorldCom were a sign that the management team was properly focused on “achieving results,” that the
national tragedy of September 11 was an opportunity for the Company, that the failure of the Sprint
merger was a positive event (even though he had earlier touted the deal), and that the SEC’s inquiry
into WorldCom’s accounting was “general” and “boilerplate.” 261, 263, 267, 269. However, each
of the analyst reports was materially false and misleading, made more so by Grubman’s knowledge of
WorldCom’s deteriorating financial condition (which Grubman, like WorldCom’s officers, directors
and auditors, helped hide from the investing public) and, as discussed below, by the failure to disclose
the material conflicts of interest that existed between and among WorldCom, Ebbers, Salomon and
Grubman.
Unbeknownst to investors, Salomon and WorldCom entered into an illicit, quid pro quo
relationship in which, in order to obtain WorldCom’s lucrative investment banking business, Salomon
and Grubman agreed to provide WorldCom’s most senior officers with millions of dollars worth of de
facto kickbacks, hundreds of millions of dollars in loans, and effusive analyst reports that they knew full
well would inflate the price of WorldCom securities. 13, 222. This clandestine arrangement was
likened by New York State Attorney General Eliot Spitzer to “commercial bribery.” 222.
To attract WorldCom as a client, Salomon provided Ebbers, Sullivan and at least one Director
Defendant (Kellett) with millions of dollars of risk-free shares of “hot” initial public offerings, which
Salomon knew would put easy money into the pockets of key decision-makers at WorldCom. 222.
While Salomon provided this remuneration to a number of executives in the telecom industry, no one
benefitted like WorldCom and, in particular, Ebbers. 229. On at least twenty-one occasions,
Salomon allocated to Ebbers hot IPO shares, which Ebbers sold for a handsome profit of $11.5
-20-