Michael Milken. Ivan Boesky. Robert Brennan. And now Jack B. Grubman.
Milken, the former junk bond maestro at Drexel Burnham Lambert; Boesky, the former arbitrager-turned-insider trader; and Brennan, the former penny-stock operator, have all paid millions of dollars to the government and have been barred from the securities business.
And they will soon be joined by Grubman, the former star telecommunications analyst at Salomon Smith Barney, who has agreed in principle to pay US$15 million in fines to settle a regulatory case and will also be barred from the industry.
Exactly what the government will contend Grubman did is unclear. But if his is similar to other settlements, Grubman will neither admit nor deny that he has done anything wrong. Unlike Milken, Boesky and Brennan, however, Grubman has neither faced criminal charges nor been found guilty of them.
Lee Richards, Grubman's lawyer, released this statement: "I can't comment on the specific terms of the agreement in principle with federal and state regulators. As you can appreciate this has been an extremely difficult time for Mr. Grubman and his family and they are obviously very pleased to get this behind them."
Customers of Salomon Smith Barney who heeded Grubman's bullish advice on WorldCom stock had mixed reactions to the news that he was close to settling with regulators. Henry Hochman, 88, said he lost almost US$10.7 million in WorldCom stock that he held and that he had pledged and guaranteed to a charity.
Hochman said that his son had advised him to sell some of his WorldCom shares before they declined, but he held on because Grubman advised it.
Asked how he felt about a pending settlement by Grubman, Hochman said: "I'm broke. I have to start saving pennies now. I can't live the way I was accustomed to living. It has affected my health. Smith Barney told me this was the best of the telecom companies. Whatever Grubman wrote sounded very good."
Terri Howell, a former spokeswoman for WorldCom who left the company in 1998 to take care of her ailing mother, said she lost hundreds of thousands of dollars following Grubman's upbeat advice on WorldCom stock. She said she cheered when she heard he may be barred from the industry.
"I view today's action as a solid first step," Howell said Friday. "All parties who were involved in this institutional breach of ethics should be held accountable and should be banned from Wall Street for life. Mr. Grubman's supervisor, the brokers who led the retail clients to slaughter, all of them should be held accountable."
If Grubman reaches a settlement with regulators, as expected, it will be only the first of many legal battles for him. More than 30 customer complaints have been filed with regulators against Grubman and more are likely.
Analysts are not the typical inductees into Wall Street's hall of shame. That crowd is usually populated by rogue traders.
In an interview with Business Week in May 2000, Grubman scoffed at anyone who questioned the propriety of having an analyst work closely with the firm's investment bankers. "What used to be a conflict is now a synergy," he said. "Objective? The other word for it is uninformed."
Today the word is "outlawed."
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