Two former Smith Barney employees have denied WorldCom-related allegations brought against them by the NYSE.
The pair, Philip Spartis and Amy Elias, stand accused of improperly informing clients, who were shareholders and employees of WorldCom, of the risks associated with exercising options and taking out large margin loans to cover the costs of going long on that company’s shares.
Their lawyer, Jeffrey Liddle of New York, has filed a formal denial of those charges with the NYSE hearing board.
The NYSE asserts in its allegations that Spartis and Elias counseled clients to exercise their shares and hold them in a margin account while neglecting to explore other methods of investing—such as a cashless exercise—which could free shareholders from margin obligations.
In addition, the stock exchange maintains that packets of information the brokers distributed to WorldCom option holders did not contain any information about the implications of WorldCom’s stock dropping, rather than continuing to rise.
In his response to the charges, Liddle claims that the analyses provided by the brokers "demonstrated the relative benefits of the holding or selling stock at varying price targets, including the then-current stock price."
Liddle has maintained that many of the charges being leveled at his clients should instead be pointed at former Smith Barney analyst Jack Grubman, who issued misleading research reports about WorldCom. And the brokers have filed suit against Grubman, a first for brokers suing their own firm’s analyst.
But not everyone is convinced that Spartis and Elias should share investors’ victim status.
"The clients, the firm, everyone is all bad, but Phil and Amy, they were good people?" asks Seth Lipner, a Garden City, N.Y.-based attorney, who has several complaints against Smith Barney pending. "They just assail everyone and they’re the two innocents."
The NYSE’s case refers to several cases in which clients sued Spartis and Elias, as well as other brokers, describing their situations. But Liddle points out that arbitrators later dismissed a number of those complaints, and when they were refilled, several removed allegations against Spartis and Elias.
"Several lawyers asked to dismiss claims against Phil," Liddle said. "The underlying cases don’t even exist anymore."
For its part, Smith Barney has settled a number of the cases through cash awards (one reached $600,000). A few others were dismissed.
Smith Barney, in addition, accepted a $1 million fine from the NASD, a sanction and a supervisory penalty as a result of the problems in the Atlanta branch where Spartis and Elias formerly worked. However, Liddle has said that he believes the exchange was "manipulated" into going after Spartis rather than focusing on Grubman and Citigroup higher-ups.
In addition, Liddle has also sued Stuart Goldberg, a New York-based attorney, for publishing a 107-page document on the Internet asserting connections between Spartis and analyst Grubman.
