Salomon Smith Barney

DESPITE ITS REPUTATION as an investment company that has produced solid results for its clients, Salomon Smith Barney (SSB) became mired in the corruption and greed that shook the securities industry in the 1990s. Smith Barney, which was founded in the late 19th century when the firms of Edward B. Smith and Charles Barney combined, was bought by Travelers Group in 1992. Travelers united Smith Barney with Salomon, Inc. Scandal hit the company in 1991 when Salomon's Paul Mozer set up a scam in which he used unsuspecting clients to buy more two-year Treasury notes than the legal limit allowed by the federal government. Of the $12.26 billion sold at a Treasury auction on May 22, 1991, Salomon bought 90 percent. As a result, the company was forced to pay a $290 million fine for defrauding the U.S. Treasury.

While Salomon Smith Barney was still recovering from the Treasury fiasco, government regulators levied a $300 million fine when it was discovered that SSB's telecom research analyst, Jack Grubman, had falsified company reports to make certain companies appear healthier than they actually were, causing a number of investors to lose substantial amounts of money. Federal and state regulators had little trouble tracing the actions in which Grubman promoted a number of companies that later went bankrupt, because he left a substantial e-mail trail. Investigators also uncovered information that led them to believe that the company's rivals had been paid to issue misleading reports to make designated companies look inviting to investors. Although he never admitted any wrongdoing, Grubman was ultimately banned from the securities industry for life and was forced to pay a $15 million fine.

Sandy Weill, chairman of Salomon Smith Barney, who was once known as the most powerful person on Wall Street, also fell victim to the scandal. Investigators learned that Weill had made a $1 million donation to an exclusive nursery school to ease the way for the application of Grubman's child. Weill has since been allowed to speak to SSB analysts only in the presence of lawyers.

He was also taken to task for not properly supervising Grubman and other individuals who provided misleading financial analysis, and he was required to issue a public apology to SSB clients. Evidence revealed that other SSB executives had also turned a blind eye to tainted research. For example, Michael Carpenter, who headed up SSB's global equity research team, was warned in a December 2000 memo that “legitimate concerns” had been raised “about the objectivity of [SSB] analysts.”

While SSB was only one of 10 investment companies caught up in securities scandals in the 1990s,[Page 710] the company received the stiffest fine and was severely taken to task by federal and state regulators

As if financial scandals were not enough, the Los Angeles, California, office of SSB also became caught up in a sexual discrimination case in 1997. Around 2,000 female employees accused the company of creating a sexually hostile working environment. In December 2002, the women were awarded $3.2 million in compensatory and punitive damages after it was revealed in court that male employees had engaged in intimidation, ridicule, and insults in addition to playing pornographic videos, and engaging in other sexual activities.

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