In Focus

thics. The meaning can vary dramatically, depending upon which person defines it.

Take Salomon Smith Barney's analyst Jack Grubman. According to this week's Business Week, he thought graduation from MIT (Massachusetts Institute of Technology) sounded better on his resume than Boston University, so he used MIT. And he did so intentionally. He told Business Week that, "At some point, I probably felt insecure, and it perpetuated itself." Likewise, he felt better claiming that he had grown up in South Philadelphia - home of singer Frankie Avalon and movie boxer Rocky Balboa, instead of where he truly grew up (Oxford Circle). So he used South Philly.

Fast-forward, his deception has continued. This time, he and Salomon Smith Barney have left victims. Jack Grubman, of course, reportedly was the wheeler and dealer for telecommunications stocks, such as Worldcom, Qwest, Global Crossing, Winstar, McLeod and others. His irrational exuberance (deception) for these and other telecommunications stocks could be excused, but for the fact that his job title was not a company pitchman, but, instead, an independent stock analyst.

"Grubman's interests were deeply conflicted", according to Business Week, because he was actively involved in managing, consulting, rewarding and otherwise assisting the companies that he covered for his firm and for investors relying upon his independent judgment. Grubman knew this. He told Business Week 2 years ago that, "What used to be a conflict is now a synergy".

As bad as Grubman was, worse is his boss, Sanford Weil, chairman of Citigroup, the parent company of Salomon Smith Barney. At the same time that Grubman expressed his opinion of what a "new" independent stock analyst should be, Weil expressed concern that analysts must maintain their objectivity. Despite that concern, Weil and Salomon did nothing to stop Grubman from perpetrating his shenanigans.

Investors in telecommunications stocks have lost $2 trillion, twice the losses caused by the bursting of Internet bubble. Meanwhile, Salomon has "earned" several hundred million dollars in fees and Grubman about $20 million per year. Ethics? Grubman didn't take that course at MIT - or Boston University.

— James J. Eccleston
FinancialCounsel.com