Analyst Fraud Claims Can Stay, Judge Rules In WorldCom Case
Southern District of New York Judge, Denise Cote ruled on Tuesday that reports
in the press with regard to potential analyst conflicts at leading investment
banks did not constitute a "storm warning" which should have alerted
investors in WorldCom to the flawed research offered on that company by Salomon
Smith Barney analyst, Jack Grubman. In response to one of the many actions filed against the Wall Street firm over
its role in covering up the actual state of WorldCom's financial affairs, Salomon
took a position influenced by an earlier ruling by Southern District Judge Milton
Pollack, who argued that investors who speculated at the height of the internet
bubble could not blame generalised research issued by Merrill Lynch for the
loss of their assets when the bubble burst. However, on Tuesday, Judge Cote explained that the situation was totally different,
especially given Salomon's close relationship with the ailing firm, and the
large fee payments made by WorldCom to Grubman for helping to disguise the firm's
increasing problems. According to a New York Law Journal report, Judge Cote observed that many of
the reports in the media at the time "address the conflicts which existed
on Wall Street generally, and do not discuss WorldCom and [Salomon] in particular." She went on to add that: "It is ironic that the [Salomon] defendents now contend that the conflicts
of interest that they have so vigorously argued are insufficient to sustain
fraud allegations were sufficiently reported in the business press to put plaintiffs
on notice of their fraud claims as early as 2000." .
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