Smith Barney Responds to Broker SuitSmith Barney Responds to Broker Suit

David A. Gaffen

Salomon Smith Barney, which was named in a suit yesterday by two of its former brokers in an Atlanta branch, said late yesterday that the counter-suit was without merit, largely relying on "hindsight" from the complaining parties--both the brokers and the original complaints from its customers.

The firm, which has fired the two brokers in question, is currently in arbitration with several WorldCom employees, who were clients of Smith Barney brokers, Spartis and Elias. The complainants argue that Spartis and Elias, who had built a large business advising WorldCom employees on exercising stock options, encouraged them to take on margin risk, allowed them to be over-concentrated in WorldCom stock and failed to apprise clients of the growing precariousness of the strategy as WorldCom's stock plummeted. With regard to these complaints, Smith Barney said "These claims rely largely on the benefit of 20/20 market hindsight, as well as first-hand belief on the part of employees in the ongoing potential of their company's stock."

The complaints by WorldCom employee-shareholders amount to approximately $35 million. Spartis and Elias say the firm has abandoned them and began to settle the claims. In response, the two brokers filed a cross-claim against the firm and a third-party claim against its telecom analyst, Jack Grubman, charging that his bullishness bears some responsibility for the investment decisions made by their clients.

Smith Barney yesterday said that they concur with the "sentiment that it was a challenge to persuade employees to diversify, but "find it absurd to suggest that there's any merit to claims that these employees hinged their diversification strategies and decision on a single equity holding and a single analyst rating."

See Brokers Sue Salomon Smith Barney and Analyst Jack Grubman