Investors to File Claim Over WorldCom Losses

In an unusual move, a group of small investors who say they lost their life savings because of Wall Street analyst Jack Grubman’s puffed-up stock rating for WorldCom Inc. are taking their complaints en masse to the security industry’s watchdog group.

More than 100 investors are filing an arbitration claim today with the National Assn. of Securities Dealers, said Robert Weiss, the investors’ attorney. Weiss said his firm could handle up to 100,000 similar claims.

The investors each lost less than $25,000 in WorldCom’s meltdown, which ended in bankruptcy last year, Weiss said. “These are not wealthy people. These are real, Main Street people, retirees who did not have big portfolios, and they lost everything they had because they relied on this research,” he said.

Claims presented to the NASD for arbitration are generally considered individually, and it would be unusual for a large number of related cases to be presented at once, said Linda Fienberg of the group’s dispute-resolution program.

Grubman helped send WorldCom’s stock soaring by giving it high “buy” ratings even as the company stumbled early last year. Weiss maintains his clients purchased WorldCom stock based on recommendations Grubman made as an analyst for Citigroup’s Salomon Smith Barney brokerage unit and did not understand the risks.

WorldCom filed for bankruptcy protection in July, nearly collapsing under a far-reaching accounting scandal that cost investors more than $7.5 billion. The Justice Department and the Securities and Exchange Commission are investigating the accounting abuses, which have led to criminal charges against several former top executives.

Last month, the nation’s biggest brokerage firms agreed to pay $1.44 billion to resolve government charges that they gave biased stock ratings and promised to change the way they do business. The settlement did not make clear how investors would be compensated.

Most claims presented to the NASD for arbitration involve larger sums and are heard by a panel, Fienberg said. Claims for less than $25,000 usually are considered by a single public arbitrator.

Grubman quit Salomon in August. The NASD fined the brokerage $5 million to settle charges that his research was misleading and filed a complaint against Grubman.

Grubman’s attorneys did not immediately comment. His former brokerage declined comment on the claims.