The Securities and Exchange Commission, New York Attorney General's Office, NASD and the New York Stock Exchange Permanently Bar Jack Grubman and Require $15 Million Payment
Nancy A. Condon
New York and Washington, DC, Apr. 28, 2003 - The Securities and Exchange Commission, the New York Attorney General's Office, the NASD and the New York Stock Exchange -- following a coordinated investigation of allegations of undue influence of investment banking interests on research analysts at brokerage firms -- today announced that Jack Grubman will be censured and permanently barred from the securities industry, and will pay a total of $15 million to settle their charges against him. The regulators charged that Grubman, of New York City, a former managing director of Salomon Smith Barney Inc. (SSB), the lead research analyst for SSB's telecommunications (telecom) sector and the linchpin for SSB's investment banking efforts in the telecom sector, issued fraudulent, misleading, and otherwise flawed research reports under SSB's name. As a result, Grubman aided and abetted SSB's violations of antifraud provisions of the federal securities laws and violated NASD and NYSE rules as well as New York State law.
In particular, the regulators found that, during 1999-2001, Grubman:
- issued several fraudulent research reports on two telecom stocks (Focal Communications and Metromedia Fiber) that contained misstatements and omissions of material facts about the companies, contained recommendations contrary to the actual views regarding the companies, overlooked or minimized the risk of investing in these companies, and predicted substantial growth in the companies' revenues and earnings without a reasonable basis;
- issued numerous research reports on six telecom stocks (Focal Communications, RCN Communications, Level 3 Communications, XO Communications, Adelphia Business Solutions, and Williams Communications Group) that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts regarding these companies' business prospects, contained exaggerated and unwarranted claims about these companies, and/or contained opinions for which there was no reasonable basis; and
- published a research report in November 1999 upgrading AT&T that contained omissions of material facts and was misleading.
Grubman neither admits nor denies these allegations, facts, conclusions, and findings.
Grubman's $15 million payment is specified in a Final Judgment that, if approved by the Court, will be entered in an action filed by the SEC in Federal District Court in New York City. Of the $15 million total payment, half ($7.5 million) will be authorized by the SEC, NYSE and NASD to be added to a distribution fund for the benefit of SSB customers; that fund will be created in a separate action brought against SSB. The remaining $7.5 million penalty will be paid to the New York Attorney General.
Under the terms of the settlement, Grubman agrees that he will not seek reimbursement or indemnification for any amounts he pays under the settlement. In addition, he agrees that he will not seek a tax deduction or tax credit with regard to any federal, state or local tax for any penalty amounts he pays under the settlement.
Under the terms of the settlement, the Final Judgment in the SEC's Federal Court action will enjoin Grubman from violating the statutes and rules he is alleged to have violated.
View documents pertaining to Global Settlement of Conflicts of Interest Between Research and Investment Banking.