Broker Fights for His Reputation—and Wins (Some of It Back)
Philip Spartis, a former highflying Salomon Smith Barney broker, last week won a $1 million defamation judgment against lawyer Stuart Goldberg in an Arizona court. Goldberg had claimed Spartis, who used to handle accounts for executives of WorldCom, was working together with fallen telecom analyst Jack Grubman in a scheme to rip off his clients. Goldberg made the allegations in extensive comments on his Web site.
Spartis is best known for filing suit against his firm and Grubman in 2002 for conflicts of interest, conflicts that had cost Spartis’ clients millions. Spartis, then based in Salomon Smith Barney’s Atlanta office, had handled the exercise of stock options for hundreds of WorldCom employees. For more see: Spartis, Elias Each Seek $100M From Smith Barney and Betrayed?
Spartis’ defamation suit is an unusual case, and one that should give heart to brokers—the focus of so many investor complaints and so much investor ire in the years following the bursting of the stock market bubble. Some lawyers say it could give other brokers the courage to challenge investor complaints that mar their reputations and records.
Few brokers ever file defamation lawsuits, and the conventional wisdom is that they shouldn’t, says Bill Singer, an attorney with Gusrae Kaplan & Bruno in New York and a columnist for this magazine. Most brokers believe it’s too expensive and they’re too hard to win, according to Singer. But he says that’s more lore than law. “The more people talk about [this case], the more people will begin to realize that maybe you need to question [that lore] once in a while,” he says.
“This was a first of its kind—an indication that a broker could fight back,” agrees Spartis’ lawyer Jeffrey Liddle, an attorney with Liddle & Robinson in New York. “It certainly can give somebody hope that they could file a case. Most brokers have to defend themselves in a different forum—in the arbitration forum,” he adds.
Spartis also has a case against Smith Barney concerning his termination from the firm in 2002, with a hearing set to commence in May, says Liddle. “In this case, my guess is that they wanted Phil [Spartis] to be the scapegoat for all of these [investor] claims,” Liddle says. Investors filed numerous complaints against Smith Barney after WorldCom imploded, saying that its brokers encouraged them to take on margin risk, allowed them to be overconcentrated in WorldCom stock and failed to alert them when WorldCom’s stock began falling.
Spartis, and another broker who was fired from Smith Barney for similar reasons, never settled because they didn’t want the information on their U4s, and felt settling would imply an admission of guilt. The brokers claimed they were only following strategy suggested by Smith Barney analyst Grubman.
In the meantime, the NYSE is still pursuing an investigation into Spartis’ brokerage activities, and Salomon Smith Barney has paid $1 million to the NYSE to settle charges stemming from the activities in the Atlanta branch office where Spartis worked. Spartis, who worked as a stockbroker for 25 years before the WorldCom debacle, is now a paralegal at Liddle & Robinson.
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