SSB’s Grubman Tells House Committee that He Had No Knowledge of WorldCom Fraud, “Saddened” that Investors Lost Money
Salomon Smith Barney telecom analyst Jack Grubman said today at a hearing before the House Financial Services Committee that he regretted not lowering WorldCom earlier and that his access to company management wasn't so great as to allow him to find out that the company was hiding $3.9 billion in expenses. Grubman lowered lowered his rating on the company's shares just days before it restated earnings.
Grubman said at the hearing that accusations of him having advance knowledge of the fraud are “categorically false.”
“I had no advance knowledge whatsoever,” he told the panel.
He also claims that his downgrade “was in the normal course of business.”
Grubman cut his recommendation on WorldCom to “underperform” from “neutral'' on June 21, four days before the company announced that expenses had been hidden. Grubman had a “buy” rating on the stock from 1997 through April.
House Finance Committee Chairman Michael Oxley, an Ohio Republican, said in his opening statement that the panel will attempt to determine “whether Mr. Grubman's failure can be explained by the hundreds of millions of dollars worth of underwriting his firm collected from WorldCom.”
WorldCom paid Smith Barney about $80 million in investment banking fees from 1998 to 2001, Grubman told the panel. He also said his own compensation wasn't directly tied to the fees paid by WorldCom.
Grubman also claimed that he was “saddened” that investors lost money and that people lost jobs over the WorldCom disaster.
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