Last week when New York State Attorney General Eliot Spitzer and Wall Street executives announced the $1.4 billion global settlement, Spitzer’s office also released volumes of documents, memos, emails and handwritten notes Spitzer had obtained during its yearlong investigation.
Among the thousands of pages Spitzer’s office released were analyst "report cards" filled out by brokers and investment bankers. (Each year, analysts are reviewed by brokers and others in their firms in surveys.) The surveys reveal what you might expect: In 1999, everyone loved the high-flying dot-com analysts, such as Grubman, but by 2001, brokers were ranting that Grubman had cost them and their clients millions.
In other words, even if brokers have been exempt (so far) from direct blame in the research scandal (and some would argue that reps are victims too), most reps certainly didn’t mind Grubman and his research brethren during 1999 and before. Basically, few noticed or seemed to care that research might have been crooked: Everyone seemed to be making money. Of course, in 2000, a year before Grubman was fired, a growing chorus of brokers were screaming conflict of interest–and weren’t being heard. Meanwhile, the same year, bankers were singing Grubman’s praises.
The following is a compilation of broker and investment banker comments about SSB’s Grubman from 1999-2001. Notice the difference in tone among broker and banker comments in 2000 and how reps’ own opinions on Grubman evolve in just two years. (Spitzer’s office had no comment as to how the comments factored into their investigation.)
1999 Broker Comments
"Hope Grubman’s bonus is great. He earned it for us all."
"Pay Grubman whatever he wants!"
"Jack Grubman is the very best!"
"Jack’s the man!"
"The telecom group headed by Jack Grubman is the best team I’ve had the pleasure to work with in my 25 years in the business."
"I feel that there is a strong conflict of interest when an analyst is also an investment banker (i.e. Grubman). I don’t feel like they can totally be objective when issuing ratings on companies where they have or don’t have investment banking interests."
2000 Brokers’ Comments
"In spite of the telecom meltdown, Jack is still adding great value."
"Tough year, but he’s still the man!"
"Even if his group sucked, Jack is a franchise we need!"
"Under the category 'Bonus For Creating Tax Loss Carry Forwards For Retail Clients,' Grubman should be recognized accordingly as our best analyst."
"Writes tremendously helpful research reports which have educated me greatly about the industry. However, his strong recommendation of WCOM, about which he said, ‘I’ll stake my reputation that WCOM will double within a year, and don’t come crying to me in six months when the stock is up 50 percent if you don’t buy it now,' hurt me VERY MUCH. I aggressively bought WCOM for my clients and myself, and this hurt my business. However, I think he is very good at explaining the industry. He just missed the rapid deterioration of voice services."
"Due to his blatant lack of objectivity, I find it hard to put faith in any analyst."
"I will never trust his research again. He has no credibility. They make fun of him on CNBC."
"We cannot afford an overpriced cheerleader like Grubman."
"Most of my clients don’t even want to see his research. I think a reality check would be very much appreciated."
"If Jack Grubman is a ‘top research analyst," then I have a bridge to sell."
"Not all four letter words are bad ones. Perhaps some of the analysts, like Grubman, should consider this one: SELL"
"I don’t know how Grubman can write so well and be so wrong. He has costs me two clients so far."
"Jack Grubman is very lucky that he brings mega business to the firm — he is insulting in his presentation and his arrogance is disgusting."
"A monkey could pick better stocks than he could."
"Get rid of the horse’s ass Grubman."
"Grubman is as bad as Jeff Harris was. He has lost millions for my clients. He may be great for investment banking, but his analysis is so far off you need a telescope to see reality. His downgrades are right in time for bankruptcy filings!"
"I believe the firm is at risk to legal action in any case where an analyst is also an investment banker. This is inconsistent and we have seen some disastrous recommendations."
"I think you need to rethink having a banker also wearing an analyst hat. Something is not working right there. The institutional investors may love him, but he’s made us lowly retail brokers look very stupid. I’m a big boy and always take responsibility, so I don’t blame Jack Grubman. I just won’t listen to his advice again. Enough said."
"Move Grubman to BUY SIDE where he belongs."
"He has sold his soul to the investment banking arm of the business. Allowing him to represent himself as an analyst is an egregious act by the management of this firm. Clearly many of his BUY and table-pounding BUYs were directly related to investment banking money for him and this firm. Shame on him, shame on the banking division, shame on the senior management of this firm."
2000 Banker Survey on Grubman
"Jack is clearly a rock star in the securities industry. Jack is readily accessible and a true pleasure with which to work. He is indispensable to SSB’s telecom franchise."
"Jack is viewed as a GOD by company management team and is a primary reason for SSB’s telecom effort to remain strong regardless of several key banking departures."
"I am amazed that given the demands on his time, Jack is able to be as effective as he is."
2001 Broker Survey Comments on Grubman
"Shoot Jack Grubman."
"Grubman is a banking whore."
"In my 16 years in the retail brokerage business, NEVER have I received such misguided, horrific recommendations from an analyst. Not only has he cost my clients and myself millions in lost asset wealth, but he has exacerbated the difficulties of our business."
"What can you say? Poster child for conspicuous conflicts of interest."
"This individual characterized as an analyst is a laugher for sure."
"He is either totally incompetent or is involved in illegal activities. Either way, he should be fired."
"How is he still employed? Oh, that’s right, he brings in investment banking business despite his destruction of retail client accounts."
"I cannot convey enough the level of dismay and distress his ‘recommendations’ have caused my clients. I have lost accounts because of him ass well as the trust of many of my clients."
"Destroyed our clients and probably the worst timing on buys for sells I have ever heard of."
"An obvious lack of integrity belief at this point."
"(Grubman) is a joke. Couldn’t you save a few jobs if you let this crook go?"
"I am ashamed that he works for us. Drop the liar. He is not honest. Bad for our reputation. We had a rough year."
"I find it hard to believe that he still has a job at SSB. I have never known of an analyst to be as consistently wrong as he has. There have been not one, or two, or five, or 10, but probably 20 stocks that he has recommended that are now trading around a buck or below. He pounds the table on them all the way down with buy, then downgrades them at $1 or discontinues coverage all together. Then he has the hubris to take credit for cutting the rating at $1 when the stock is at 50 cents. That takes big ones. Get rid of this guy. He obviously doesn’t get it. He has singled handedly wiped out some of our clients."
"He has blown up more clients than anyone I have ever followed."
"I will never buy another stock he recommends. He is the most overpaid analyst we have and, in my opinion, he is an investment-banking prostitute. It is obvious he doesn’t care whether our clients make money or not."
"There are no words to express how deplorable and sickening his guidance has been."
"A black smudge on our firm’s reputation."
"Give us all an early Christmas present: Fire Grubman."
"It’s criminal what he has done to retail clients. He should be in jail. I am embarrassed that I work under the same umbrella as him."
"Pitiful, very misleading and almost vengeful in the way he handles his stocks."
"There is no question in my mind that Jack Grubman has cost me a number of clients, referrals and new money contributions from current clients. He is one of the primary reasons that I will significantly increase my emphasis on Consulting Group and mutual fund business. I am furious."
"Please do not fire Jack. He is my No. 1 indicator — I just do exactly what he says not to."
"Why is he not accountable? We are."