February 28, 2002
Dow Jones News Service
NEW YORK -(Dow Jones)- Law firm Klayman & Toskes PA plans to continue its investigation of Salomon Smith Barney on behalf of participants in WorldCom Inc.’s ( WCOM ) stock option plan.
The firm estimates total damages at more than $25 million, and alleges that Salomon failed to recommend hedging strategies to plan participants so they could protect their concentrated positions in WorldCom.
In a press release Thursday, Klayman & Toskes said the broker team of Phillip Louis Spartis and Amy Jean Elias mismanaged the participants’ portfolio, noting that options were available that could have protected the margined portfolio.
The Klayman & Toskes release said Salomon terminated Spartis and Elias on Feb. 4.
As reported, Spartis and Elias filed a counterclaim against Salomon and telecommunications analyst Jack Grubman, saying both Grubman and Salomon should cover any damages awarded against them by an arbitration panel from the National Association of Securities Dealers.
Grubman was bullish on WorldCom, a point Spartis and Elias say was a major factor in some clients’ portfolio management decisions. Salomon responded when the countersuit was filed Feb. 22, saying that although it was difficult to persuade WorldCom employees to diversify, it was unrealistic to think clients hinged their entire portfolio strategy on one analyst’s rating.
The Wall Street Journal reported Thursday that Jack Grubman – an aggressive backer of firms including WorldCom, Qwest Communications International Inc. (Q) and Level 3 Communications Inc. (LVLT) – may see a change in his role, a statement Salomon denies.
The Journal article indicated that a source familiar with the matter said Salomon has talked to another Wall Street analyst about Grubman’s position.
Some have raised concern over Grubman’s dual role as a banker and an analyst, given his penchant for backing stocks that were also Salomon banking clients.
Grubman had thrown support behind several companies that plummeted, including Global Crossing Ltd. (GBLXQ) and AT&T Corp. (T), the latter of which brought on a lawsuit – eventually dismissed – based on an alleged conflict of interest that led to Grubman’s maintaining a “buy” recommendation on AT&T during a period when the company’s shares fell almost 70%.
Shortly after his AT&T recommendation, the Journal noted, Salomon was named joint lead manager of the initial public offering for AT&T’s Wireless Group.
-Gregg Henglein; Dow Jones Newswires; 201-938-5400