Analyst Is Under a Harsher Light

Jack Grubman emerged from the working-class neighborhoods here more than 30 years ago with little more than an aptitude for numbers and a reputation as someone who was going places.

That place was Wall Street, where Grubman became one of the most influential and highest-paid securities analysts of the 1990s, pulling down a reported $20 million a year during the stock market boom.

Grubman specialized in the highflying telecommunications sector, and he remained one of its biggest cheerleaders--right up until the business collapse that spurred allegations of massive accounting fraud and erased trillions in investors’ paper wealth.

The once-celebrated analyst is now under fire for hyping WorldCom Inc., Global Crossing Ltd. and other telecom companies while they were clients of his investment firm, Salomon Smith Barney.

Grubman and Salomon deny any wrongdoing. Testifying before the House Financial Services Committee last month, Grubman said he had no idea that WorldCom executives hid billions of dollars in company expenses from investors.

Still, the analyst acknowledged remaining bullish on WorldCom for too long. “I certainly made mistakes,” he said.

Last week brought the revelation that Grubman wrote a $100,000 check to the Democratic Senatorial Campaign Committee--a check that was received the very day he was subpoenaed to testify before Congress. The contribution, described by the Wall Street Journal as Grubman’s biggest political contribution ever, was solicited by the committee, a spokeswoman said.

Such reports only reinforce Grubman’s public image as an elbow rubber seeking influence with the high and mighty.

It’s been an abrupt fall from grace for Grubman, an intense, self-described “telecom junkie” whose favorable research reports once moved markets.

Jack Benjamin Grubman, 48, was raised in a working-class section of northeast Philadelphia. His father, Izzy, was a municipal worker and professional boxer who was so strong he could tear a phone book in half. His mother, Mildred, worked in a dress shop.

Young Jack worked as a busboy, loaded packages and sold beach umbrellas during summers in Atlantic City, N.J. At Northeast High School, he played the clarinet in the marching and concert bands and was a three-year member of the debate team. He made the National Honor Society his junior and senior years.

“Jack was a very smart and aggressive guy,” said Jacob Zamansky, who double-dated with Grubman at their prom. “I had the feeling he would be a success in whatever he chose to do.”

After graduating in 1971, Grubman headed to Boston University, where he majored in mathematics. But in his official biography, he listed his undergraduate alma mater as the Massachusetts Institute of Technology--a deception revealed by Business Week two years ago.

Grubman told the magazine it was “a stupid mistake on my part,” adding: “At some point, I probably felt insecure, and it perpetuated itself.”

Grubman, an amateur boxer in high school, also claimed to be from south Philadelphia, a more colorful section of the city that Sylvester Stallone made famous in the film “Rocky.”

After Boston University, Grubman earned a master’s degree in math from Columbia University and went to work for AT&T; Corp. in 1977. He stayed with Ma Bell until 1985, then joined PaineWebber as a telecom analyst.

There, he developed a thesis that would serve him well for 17 years: that smaller, more nimble telecom companies would outperform entrenched industry giants such as AT&T.;

Grubman moved to Salomon Bros. in 1994.

By the late 1990s, deregulation had caused explosive growth in telecommunications, and Grubman was named the top analyst in his field by Institutional Investor magazine. A workaholic, he traveled constantly and enjoyed close relationships with executives.

Grubman was more than an analyst--he was an advisor. He worked with Global Crossing on its failed 2000 merger with US West, the Denver-based Baby Bell, and consulted with then-WorldCom Chief Executive Bernard J. Ebbers on dozens of acquisitions during the 1990s.

He was paid handsomely for his efforts, earning a reported $20 million in 1999. In January of that year, Grubman and his wife, Luann, bought a Manhattan duplex for $6.2 million. The couple has two children.

Critics said Grubman and other Wall Street analysts knocked down the traditional “Chinese wall” between investment bankers and supposedly objective researchers. It was an allegation Grubman didn’t exactly dispute.

“I’m sculpting the industry,” Grubman said in 2000. “I get feedback from institutions and CEOs.... It’s a virtuous circle.”

During another interview, he said: “Objective? The other word for it is uninformed.”

Grubman declined to comment for this story. But he has his defenders.

Salomon spokeswoman Susan Thomson said Grubman has the company’s full support.

“He’s an active member of our research team,” she said. “And that kind of speaks for itself.”

Salomon also pointed out that Grubman’s bullish stock picks came with warnings that the investments were high-risk.

Stock commentator and former hedge fund manager Jim Cramer said Grubman has been unfairly set up as a fall guy.

“We are all mad because we all lost so much money,” Cramer wrote in a column on TheStreet.com. “But we sure as heck weren’t upset when Grubman was making us money hand over fist. If you think Grubman committed a crime, believe me, you are applying laws to his behavior that didn’t exist at the time.”

Still, the U.S. attorney in Manhattan is investigating stock research at Salomon, including the work of Grubman and other analysts, according to reports in the Wall Street Journal.

Grubman also is being targeted for disciplinary action by the National Assn. of Securities Dealers, a self-policing group for brokers, for his bullish advice on Winstar Communications Inc., another fallen telecom company.

A database maintained by the NASD lists 40 consumer complaints against Grubman, including several lawsuits. Most are related to the WorldCom collapse.

Even Zamansky, Grubman’s childhood friend, is suing the analyst on behalf of a 60-year-old man who says he had to file for bankruptcy after his Global Crossing stock lost more than $450,000 in value.

Zamansky, a New York attorney whose firm specializes in securities litigation, said he didn’t initially make the connection.

“I didn’t even realize it was the same Jack Grubman,” Zamansky said. “There weren’t a lot of people from northeast Philly who went to Wall Street or even left Philly. We were some of the few who left town.”