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Broker claims stock research was slanted

| Thursday, Jan. 16, 2003

A Sewickley Heights stock broker has filed an arbitration claim against Citigroup Inc.'s Salomon Smith Barney unit, saying stock research by its former telecommunications analyst Jack Grubman was biased, according to a filing with the New York Stock Exchange.

Cheryl Schwarzwaelder, who left Salomon Smith Barney's Pittsburgh office for Merrill Lynch's office in Pittsburgh, referred comment to her attorney, Jeffrey Liddle of Liddle & Robinson LLP, New York, who could not be reached for comment Wednesday. Schwarzwaelder's claim was filed on behalf of more than 25 clients and seeks $17.2 million in damages, including $10 million in punitive damages.

Schwarzwaelder is among a growing number of brokers seeking damages from their former employers, arguing they sold stocks on recommendations from analysts that were biased. Schwarzwaelder says she questioned Grubman's favorable ratings on stocks including Global Crossing Ltd. and WorldCom Inc.

"We want them to get back 100 percent of their investment plus legal fees and interest," Robert H. Weiss, told Bloomberg news. His firm, Hooper & Weiss in Jericho, N.Y., and Orlando, Fla., has been soliciting claims and was formed this year. "No one would have purchased the stock if the relationship between Jack Grubman and WorldCom had been disclosed by Salomon Smith Barney," Weiss said.

Both Global Crossing and WorldCom, which were big investment banking clients of Salomon, filed for bankruptcy protection and are under federal investigation for accounting irregularities.

A Citigroup spokeswoman said that the brokerage expects the claim to be similar to other claims and without merit.

In a Dec. 20 settlement with state and federal regulators, Salomon and other U.S. securities firms will pay $1.4 billion in response to claims that they misled investors with positive ratings to boost investment banking business. Citigroup's fine, at $400 million, is the largest.

According to the arbitration filing, quoted by the Wall Street Journal, Schwarzwaelder e-mailed Grubman early last year and said, "In mid-February I e-mailed you asking your opinion on WorldCom and the chance that this company, like Global Crossing, would go bankrupt. …You stated that WorldCom was a terrific company, that it had great liquidity and that you were going to keep your buy rating on stock. Is this going to be another company that goes bankrupt, like Global Crossing????"

The complaint alleges that Grubman responded by reiterating his claim that the company had great liquidity and would not go bankrupt.

Grubman agreed to pay $15 million last year to settle charges that his stock recommendations were too optimistic. He also was banned from the industry under the settlement with the NASD.

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