Press Room
March 4, 2002
BLAME IT ON THE JUDGE:
Advice and Consent: Where Does Buck Stop on
Losses?
Edited by Robin Goldwyn Blumenthal Barron’s
Who's accountable for the big losses that some
investors have suffered on telecom stocks? In
many cases, the courts will decide the issue.
But for one claim involving a broker, the buck
-- or more precisely, 600,000 of them -- appears
to have stopped squarely at the coffers of Salomon
Smith Barney.
That's the latest development in a bizarre drama
that has pitted two former brokers against the
firm after they and SSB were charged in an NASD
complaint with giving bad advice to WorldCom
employees on their stock-option portfolios. The
brokers, contending that they aren't at fault,
are suing their former employer and its star
telecom analyst, Jack Grubman, who's been credited
with helping SSB win coveted investment banking
business in the sector before it imploded. The
brokers, Amy Elias and Philip Spartis, left the
firm in early February; their claim says their
jobs were terminated, but an SSB spokeswoman
says their employment was severed for job abandonment
after extended absences.
Elias and Spartis, who were part of a broker
team named in the WorldCom workers' complaint
against them and SSB, claim it was Grubman's
overly bullish calls on WorldCom, not their advice,
that caused clients to hold the stock while it
was falling. Grubman, who didn't comment, has
been criticized for recommending WorldCom and
other telecom stocks long after they started
sliding.
SSB and Elias and Spartis agree on their defense
that they tried to get the WorldCom employees
to diversify their holdings. But the SSB spokeswoman
said the ex-brokers' counterclaim was "without
merit," and that it was "almost ridiculous" to
suggest that the brokers or their clients hinged
their entire strategy on one analyst's ratings.
She said a Wall Street Journal story saying the
firm was talking to other people for Grubman's
job was "categorically untrue."
Jeffrey Liddle, an attorney for Elias and Spartis
who won a $27.6 million award for a former Waddell & Reed
broker, claims his clients were fired because
they hired him, but the SSB spokeswoman strongly
contested that. Lawrence Klayman, an attorney
for some WorldCom claimants, confirmed there
have been some settlements, and said that's the
reason the brokers sued SSB, to point the finger
at someone else.
