The master of the universe who fell to earth with $32m in his pocket

Wall Street still doesn't get it. Yesterday, an analyst called Jack Grubman cleared his desk at Salomon Smith Barney under a shadow of multiple investigations into his dealings of recent years. But the brokerage reportedly sent him on his way with a tidy $32m (£20.8m).

This is rare loyalty from a firm that indeed owes much to Mr Grubman, who for many years was its leading stock picker in the once high-flying telecoms sector.

But ordinary investors, who have lost $2,000bn as the industry has gone into freefall in the past year, can wonder – where else would a person get rewarded so obscenely for screwing up so badly?

Trace the ascent – and now the fall – of Mr Grubman, 48, from a blue-collar neighbourhood of Philadelphia to stardom in the financial hothouse of Manhattan and you will understand why his ousting on Thursday was so significant.

No single person better personifies the malaise that now taints all of Wall Street.

Mr Grubman has not, as yet, been the subject of criminal charges. But there are few people indeed, aside from himself and Salomon, willing to argue that he is not in all kinds of trouble. He and the bank are now under investigation by the securities industry itself, by Congress and by the federal government.

As an analyst and stock picker, he was meant to offer objective advice to investors on telecom companies.

But Mr Grubman was not just an observer. He was also a massively important player. He didn't just watch people such as Bernie Ebbers of the now bankrupt WorldCom spur the telecoms boom of the late Nineties. He was knee deep in helping them. Take all the chief executives of all the telecoms that have failed and one name connects them: Grubman.

This, you begin to see, raises all sorts of conflict-of- interest questions. How was Mr Grubman, who even attended some board meetings of companies including WorldCom, meant objectively to assess the prospects of those companies when he was so entwined himself in ther fortunes?

He could not. And that is one reason he continued to tell investors to buy telecom stocks long after his peers in other firms had seen that the telecoms bubble had burst.

Nowhere is his track record more questionable than in the case of WorldCom. Mr Grubman was for years intimately involved in the extraordinary crusade of Mr Ebbers, a Mississippi native, to build the world's largest telecoms company. Together they engineered 65 acquisitions, culminating in the 1998 purchase of MCI.

WorldCom began to sputter way back in 2000, yet Mr Grubman urged clients to continue buying its stock even until a few days before it revealed stunning accounting fiddles and declared bankruptcy at the end of June.

This is not, however, simply about a man blinded by his own euphoric optimism or even by his personal allegiances. It is much worse than that. What really bothers investigators is the notion that Mr Grubman used his extraordinary influence for much more mercantile reasons: to steer lucrative investment banking business to Salomon.

The bank has for years walloped the competition in Wall Street in advising telecoms companies as they sought to list their stocks, merge with one another or buy each other out. Almost $1bn flowed to Salomon this way from 1997 to 2001. No wonder the bank paid Mr Grubman a reported $20m a year.

Yet, having Mr Grubman tout their stocks might not have been enough to ensure the loyalty to Salomons of companies such as WorldCom, Global Crossing and Qwest. Their executives may have expected even more and this is where the story gets truly sleazy and why the headlines in yesterday's New York tabloids were all about Jack, the "Money Grubman". What those executives wanted – and allegedly got from Mr Grubman – was free money. Lots of it.

The National Association of Securities Dealers (NASD) says it has evidence that Salomon indulged in so-called "spinning" of shares of telecoms companies when they listed themselves for the first time on the New York stock markets.

This is a simple, but potentially illegal, wheeze.

The bank would hold a certain number of the shares in the young companies, which, on the day of their listings – in a so-called IPO, or initial public offering – would often soar in value, sometimes by more than 100 per cent.

It would then sell the shares to the executives, whose business they needed, at the IPO price. Those executives, in turn, could then sell them the same day at the far higher price at which they were being traded. Gargantuan and effortless profits were guaranteed.

The NASD is studying a lawsuit filed in California by a former Salomon employee, David Chacon, after he was fired in 2000. The suit alleges that on one occasion Mr Grubman gave Mr Ebbers a block of shares in a firm called Rhythms NetConnections at the time of its IPO in 1999. Mr Ebbers purportedly cashed them out the moment they rocketed 229 per cent in value after trading in them began. How much did Mr Ebbers earn? A cool $16m.

At the very least, Salomon appears to have turned a blind eye to Mr Grubman's more dubious tactics. It did not mind, for instance, when reporters revealed in 2000 that he had lied on his Salomon biography, saying he had studied at the Massachusetts Institute of Technology when he hadn't and even pretending he had grown up in one neighbourhood of Philadelphia particularly steeped in working-class lore, when in fact he came from another part of town. It is true, however, that his father was a municipal worker and his mother worked in a dress shop.

Neither Mr Grubman nor the bank is acknowledging that any misdemeanours, let alone crimes, were committed. The analyst does admit he got the telecoms sector wrong, however. Or sort of admits.

"While I regret that I, like many others, failed to predict the collapse of the telecommunications sector and I understand the disappointment and anger felt by investors as a result of that collapse, I am nevertheless proud of the work I, and the analysts who worked with me, did," Grubman wrote in his resignation letter.

He has his bundle of money – which consists of a $19m loan the bank is forgiving him, $12m in restricted stock and options and an additional $1.2m in cash over the next 18 months – but Mr Grubman will not be able to sail carefree over the horizon. Nor will Salomon, which is owned by Citicorp. If it thinks that simply by cutting Mr Grubman loose, it can appease the wrath of investigators, Salomon is surely mistaken.

Mr Grubman himself got a taste of his disgrace when he appeared briefly at a hearing into the collapse of the telecoms sector on Capitol Hill last month. Asked to detail what his role had been in the implosion of WorldCom, he blustered.

Finally, a congressman from Massachusetts, Michael Capuano, had had enough.

Staring at Mr Grubman, he snarled: "We have an independent analyst who is neither independent and apparently can't analyse. My major fear is that you'll get away with it."

The once shining star of Wall Street has, we now know, got away with a chunk of money. But his reputation is in tatters and even his freedom may now be in jeopardy.

Analysts whose luck ran out

MARY MEEKER
Known as the "Queen of the Net", the Morgan Stanley analyst commanded a loyal following of small investors who put their money where her mouth was. She even appeared on the cover of Fortune magazine but when the market for hi-tech shares turned nasty so did her former clients. Investors launched legal action against her but the case was thrown out last year.

HENRY BLODGET
The Merrill Lynch analyst was one of the most celebrated tippers of technology shares but the passage of time has not been kind to his reputation. In May, news emerged that Blodget had described one company as a "piece of shit" in internal mail while recommending it to investors. That and other evidence persuaded Merrill to agree a $100m (£65m) settlement with the New York state attorney general after an investigation into the firm's conduct.

FRANK QUATTRONE
In 1999 and 2000, when internet companies were rushing to float on the stock market, there was every chance that Frank Quattrone would be involved. He and his 100-strong team were said to have generated $1bn (£0.65bn) of revenue for his employers, Credit Suisse First Boston. But he has since left amid allegations – strongly denied – of favouritism in the way he allocated shares in the companies he brought to market.