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

Grubman continued to push WorldCom’s stock until he realized that he could not maintain the
charade any longer. Grubman maintained a “buy” recommendation on WorldCom until April 21, 2002,
when the stock was trading at only $6 per share and had lost more than 90% of its value ($180 billion
in market cap) from its Class Period high. On that day, Grubman downgraded the stock to “Neutral.”
270. Even then, with WorldCom’s stock at historic lows, the market took note of what Grubman
had to say. Upon his downgrade the price of WorldCom stock dropped 43% over the next two
trading days.
Even before WorldCom announced on June 25, 2002 that it would restate its financial
statements, numerous governmental entities had launched investigations into the conflicts of interest in
Salomon’s research and investment banking. On April 12, 2002, The Wall Street Journal reported that
New York Attorney General Spitzer, who for months had been investigating such conflicts at Merrill
Lynch & Co., had turned his sights to Salomon and Grubman, issuing a subpoena for documents and e-
mails related to Grubman’s research. On April 25, 2002, Spitzer announced a formal investigation of
Salomon, and one day later the SEC announced that it too had opened a “formal inquiry” into research
practices at Salomon and other large securities firms. By September 30, 2002, Spitzer had uncovered
enough evidence of wrongdoing by Ebbers and executives at other telecommunication companies with
respect to the allocation of hot IPO shares that he filed a civil suit in New York State Supreme Court
seeking to recover the profits these executives realized from the sale of those shares. 228. That
complaint revealed numerous internal e-mails authored by Grubman, in which he privately derided a
number of telecommunications companies on which he publicly maintained “buy” and “strong buy”
recommendations. 240. In fact, Grubman referred to one such company as a “pig,” and in another
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