Jack Grubman Is Back. Just Ask Him
Banned from Wall Street, the former Telecom King wants to prove that he wasn't just a huckster.

(FORTUNE Magazine) – A sharp-looking man carrying an Hermès briefcase emerges from a chauffeured Town Car in the parking lot of a quiet little strip mall in suburban Cabin John, Md.--the kind of place that could be anywhere, with a Pizza Hut, a deli, and a Chinese restaurant. He strides into the second-floor offices of Unity Communications, a paging company that did $10 million in sales last year. There a half-dozen executives listen as the man launches into a passionate talk--a sermon, really--about the state of the American telecommunications business. "The industry I grew up in was a vertical, stovepipe industry," says Jack Grubman, who was once Wall Street's top telecom analyst but was banned for life from the securities industry in 2002--a fall from grace as dramatic as any in the dot-com era. "You're evolving to a more horizontal industry. The Internet is a much more efficient way to move things." You get the feeling that Grubman needs these men to believe--in the telecom sector and in his own vision of its future. And no wonder: He was once derided as the Pied Piper of Wall Street, the cheerleader who talked up shaky telecom stocks long after they fell into fatal decline. But he believes he was unfairly demonized, and though he can't work as an analyst ever again, he can let the world know that he thinks telecom is coming back--and so, not coincidentally, is Jack Grubman.

The Unity executives listen politely to Grubman's speech, but what they're really after are his connections. Unity owns a bunch of low-growth paging businesses in medium-sized towns, and over lunch at an Irish pub down the road, Grubman starts telling them what he can do for them. "Paging as a service is like cockroaches," he says. "It's always going to be around. Maybe you take your expertise in paging and figure out a way to combine forces with someone who wants access to your customers, bundle it with something else." Grubman offers to put them together with one of his contacts. The Unity guys are visibly encouraged.

The next week, Unity CEO Jeffrey Milton tells Grubman he wants to sign him up. "I know his whole background," says Milton, a lawyer who once worked at the Securities and Exchange Commission. "But that's not enough to keep me from hiring him. This is the kind of business where connections and introductions are the difference between success and failure. If Jack can make connections for us, I have no problem making sure he is appropriately compensated. Remember, I've got a company that sells cockroaches."

Counseling unknowns such as Unity is a big step down from whispering advice to Bernie Ebbers, once chief of the world's most acquisitive telecom company. But it's probably the only way for Grubman to regain some semblance of the stature he has lost. Over dinner with FORTUNE, Grubman, 51, is determined to show that he has come through his ordeal unbowed. He flips out half-a-dozen business cards of potential clients and contacts, then rattles off a series of stats attesting to his robust health: his blood pressure is 110 over 65; resting heartbeat, 47. Ten pounds lighter than he was during his Salomon days, he jogs six miles three times a week in Central Park, where he occasionally runs into New York State Attorney General Eliot Spitzer, who led the investigation that brought Grubman down. (Spitzer is cordial if not warm, Grubman says; Spitzer didn't return our phone calls.) He's even signed up for the marathon. "Most people would think I'd do one of two things," says Grubman. "Either hide in a cave or sit on a beach whiling away the hours." Instead he's out on the road, preaching the gospel of telecom according to Jack, and looking for believers.

Not that long ago, Grubman had all the followers he could handle. As Salomon's telecom analyst, he could make a company by bestowing a buy rating or break one simply by declining to cover it. At the same time, he played the part of an investment banker, helping Salomon drum up underwriting business from the same companies he was covering. And notoriously, he reversed himself and gave a buy rating to AT&T--boasting that he did it to help get his kids into a prestigious nursery school. In the end, the telecom sector collapsed and so did Grubman's reputation. As part of the global settlement Spitzer negotiated with the top Wall Street firms, Grubman accepted a lifetime ban from the securities industry and paid a $15 million fine. His 17-year Wall Street career was over.

Today Grubman hardly sounds contrite. The lifetime ban? No big deal. "I don't like the stigma, but I was going to leave the industry anyway," he says. Nor did his personal life suffer. His wife, LuAnn, who once worked in public relations at AT&T, stood by him. His two children, now graduated from that prestigious nursery school, attend one of Manhattan's best public schools, which, Grubman brags, is so close to home that they have only a two-minute walk to class. Even after paying his fine, Grubman doesn't lack for cash: His net worth is somewhere between $50 million and $70 million. He owns a stunning six-story Upper East Side townhouse that he says will be featured in House & Garden, and another home in East Hampton. Citigroup, Salomon's parent, forgave a $15 million loan granted in 1998--a happy coincidence given that $15 million fine. Citi is paying his legal bills and, through 2006, supplying him with the office in Manhattan from which he's plying his new trade.

In what may be the ultimate rationalization, Grubman can spin his disgrace into an affirmation of his former stature. "When the market collapsed, who were they going to go after but the top dogs?" he says. (On his desk today sits an oversized mug that says IF YOU CAN'T RUN WITH THE BIG DOGS, STAY ON THE PORCH.) And Grubman can be thankful that he fared better than some other famous cast members of the Wall Street follies. Unlike Martha Stewart or CSFB's Frank Quattrone, Grubman wasn't sentenced to jail time. His old buddy Bernie Ebbers was just convicted of fraud and other crimes after a long trial; Grubman settled his case without admitting or denying guilt. His rabbi, whom he suggested FORTUNE call, thinks he's atoned for his sins. "I'm happier than I've been in a long time," Grubman says.

So why not kick back and enjoy a comfortable retirement? Well, for one thing, Grubman doesn't have any rich-guy hobbies. He doesn't race cars, fly planes, play golf, collect art, or skipper yachts. More than that, though, he seems obsessed with the need to prove, to himself and anyone else who will listen, that his Wall Street career wasn't a sham. "It's important to me that people realize that I'm still very engaged in telecom and still pretty adept at spotting what is going to happen around the bend," he says. "The ego in me likes the fact that these smart guys still take my calls and still want to do business [even though] I'm not sitting on the pinnacle of Wall Street." And he still has plenty of ego. "The one thing I care more about than anything else," he says, "is that my intellectual and industry knowledge is maintained for posterity."

IT SEEMS THAT GRUBMAN HAS ALWAYS had something to prove. He traces his initial ambition to winning a high school math competition in Philadelphia, where he grew up surrounded by the extended family of his mother, who was one of 12 children of Russian Jewish immigrants. He took the test after being blackballed from joining a club on space by the "dweeby" smart kids running it. His revenge: He posted the highest score in the city. "I liked the feeling of bursting their arrogant bubble," says Grubman. His father still has a copy of the results of that test.

After graduating from Boston University and earning a master's in math at Columbia, Grubman spent eight years in strategic planning at AT&T, then landed at Paine Webber in 1985 just as new competition in telecommunications was creating demand among investors for information and insight. He was entertaining, blunt, highly opinionated, and quotable. And he loved raising his profile by talking to the press.

His flair for self-promotion paid off. In 1994 a lucrative offer from Salomon vaulted Grubman into the elite of Wall Street firms. It was at Salomon that he perfected the art of playing both sides of the Street; analyzing stocks for the investing public, while helping Salomon raise money or advise on mergers for the same companies he tracked. Many people viewed that as a conflict of interest. But Grubman famously called it "synergy." Whatever you called it, it was lucrative. Grubman earned millions more than analysts who had more respect for the "Chinese Wall" that supposedly separated research from investment banking. But those dual roles were his undoing.

Today Grubman insists stock picking was among the least important of his duties, saying he spent only 25% of his time on research, the rest on banking and on marketing his investment thesis to institutional investors. "I knew the industry, the technology, the regulation, and a lot of management people at various levels," says Grubman. "I was very good at identifying long-term trends. And I was good with institutional clients at explaining the industry. I was not a good stock picker."

But that wasn't how thousands of investors who relied on his guidance saw it. Grubman was telecom's biggest cheerleader, touting industry newcomers such as WorldCom and the competitive local exchange carriers, which, he said, would clobber the incumbents, AT&T and the Bell companies. For a while investors made millions following his advice. But he kept pushing some of his stocks even as they fell toward bankruptcy (see chart), and investors who stuck with him suffered enormous losses. His greatest misjudgment was failing to detect WorldCom's $11 billion fraud. He wasn't the only one who missed it, of course. But he had unparalleled access to Ebbers and his team; if anyone should have noticed that the company's numbers were bogus, it was Grubman.

Grubman will forever be remembered for a lesser, more colorful escapade: allegedly upgrading a stock to get his kids into school. During the late '90s Grubman's boss, Citigroup chairman Sandy Weill, an AT&T board member, had been upset that Citi wasn't getting any of AT&T's investment banking business. At the same time AT&T executives were annoyed that Grubman had a hold rating on their stock. Then, in November 1999, Grubman changed his rating to buy. A year later he bragged in an e-mail that he had made the switch to placate Weill in exchange for Weill's help in getting Grubman's children into the exclusive 92nd Street Y nursery school. Grubman subsequently said the e-mail was just a joke. Nevertheless, after the upgrade, Citigroup donated $1 million to the Y, which admitted the Grubman children. And in 2000 Salomon got a piece of the $10.6 billion IPO of AT&T's wireless phone business.

Everyone involved insisted there was no connection between the upgrade, the nursery school admissions, and banking deals. But the whole incident became part of Spitzer's case against Grubman.

While he can't talk about the AT&T upgrade today without violating the terms of his settlement, Grubman did discuss it with FORTUNE at the time. Weill has said that he asked Grubman to take a "fresh look" at AT&T in late 1998 or early 1999, because he thought AT&T's cable television acquisitions would pay off. In December 1999, Grubman told FORTUNE that he knew Weill would "probably rather have me positive than negative," and he worried that he'd look stupid if Weill was right and he was still bearish on the stock. "I just did it because if [the strategy] works, then I wrote the seminal piece," Grubman said then. "And if it doesn't, then I'll have a lot of fun fucking these guys." In any case, Grubman--and Weill--were wrong about AT&T. It's about to be swallowed by SBC, one of the boring Baby Bells that Grubman never much liked.

IT'S A HUMBLER GRUBMAN WHO'S seeking rehabilitation today. He began what he calls his "new life" in March of last year, when he started trawling for potential clients at industry conferences. He worried about how he'd be received. "I could have walked into that room, and people could have said, 'What the fuck are you doing here?'" recalls Grubman, after attending his first conference in San Francisco. "Instead, people wanted to pick my brain. If I had been shunned, I would have had to open a grocery store or something."

In fact, many industry players aren't ready to forgive him--or talk about him on the record. "The guy misled an awful lot of people and played such a game that I think he was lucky to get off the way he did," says a former AT&T official who was never a Grubman fan. Others are stunned that he's even attempting a comeback. "He has been hit over the head with a baseball bat relentlessly, and he is still moving on with optimism," says a Wall Street executive who used to deal with Grubman regularly. "That is extraordinary."

Industry leaders still avoid him, publicly anyway, but on the fringes of telecom, Grubman has had no trouble finding people who are willing to overlook his past or are simply unaware of it. And a surprising number of mostly tiny outfits, like Unity, are willing to hire him, refer clients to him, or at least take his calls. At one conference last year Grubman met Rajit Gadh, a UCLA professor who runs a wireless Internet consortium. Gadh says he didn't know who Grubman was when he first met him but found him "very knowledgeable about telecom." And he was happy to have him join the group--for the customary $25,000 fee. While at Salomon, Grubman ran his own telecom conference; hundreds of investors and executives fought for invitations to hear his views. But Grubman, who had his first post-Salomon speaking engagement at a Gadh consortium conference in March, seems delighted to appear before a few hundred engineers and other techies. "You do realize it was a nice honor to be asked to join, allowing me the opportunity to mingle and trade thoughts with industry leaders," he says. "If people thought I was this scarred heathen," he adds, noting the presence of executives from Nokia, Motorola, and Siemens on the agenda, "they wouldn't be asking me to speak with all these guys from big companies."

His tireless networking at conferences along with contacts from his past life have enabled him to round up eight clients for his firm, Magee Group, named for the Philadelphia street where he was raised. It's not like being a big fish on Wall Street, but Grubman says he likes swimming in a smaller pond. "It is liberating not being part of a big organization where there a lot of different interests," says Grubman. "I like the fact that people like me for who I am and my brainpower, and not because I can take them public or do a bridge loan or an M&A deal. I like dealing on an intellectual level with these companies. They are hungry and willing to listen."

Yet it's clear that many of the folks he talks to value his name more than his vision, and that they're happy to ignore past missteps if he can get them access to potential customers. Larkin Bullard, the sales vice president at Intellambda Systems, a small optical networking company in Fremont, Calif., introduced himself to Grubman at a telecom conference in Naples, Fla., this past November. Bullard hopes Grubman can help him make sales to big telcos and cable companies. "I need to get visibility at the executive level at some of these companies," he says. "Where Jack has a rapport at that level, it will be very helpful." How does Bullard feel about Grubman's past? "If the public wants to blame someone for what happened, they ought to blame the accounting firms who were keeping the books." says Bullard. "I don't blame Jack. He was paid to raise money for these firms, and that's what he was doing."

A few hours later Grubman is meeting with the CEO of Narus, another potential client, over Scotch and steak. "Jack and I share a lot of visions on where the market is going, and that's difficult to find," says Greg Olsan, a Bell System veteran who endorses Grubman. "He got caught in the wrong place at the right time," he says. "If he had predicted the downturn, nobody would have listened to him anyway."

And so it goes. Grubman will continue attending conferences and working his Rolodex to build his roster. He claims he has no aspirations to hire staff or expand his business beyond his one-man show. So far he's earned almost nothing from consulting, and considering that he doesn't need the money, it's hard to view his business as anything more than a way to maintain some connection to the industry that was his life. "I keep walking and talking telecom, but with a different set of clients," he says. Make no mistake about it, though. Grubman is no longer center stage. While the big telcos and cable companies gird for a mammoth battle over delivering phone, video, and Internet service, Grubman is out talking to a bunch of tiny enterprises hoping to sell stuff to those giants. In the old days these firms would never have made his radar. Instead he'd be pontificating to clients and the press about the direction of the $2 trillion industry. Grubman tells friends he's perfectly happy with his position now; not all of them believe him.

These days there are eerie echoes of the late '90s. Internet stocks like Yahoo and Google are soaring. The telecom industry is bubbling with deals. And some of the developments that Grubman and other seers predicted seem to be arriving. The cable companies are offering phone service; the phone companies are selling TV. And cellphone networks are becoming powerful enough to deliver video clips. "A lot of Internet-based solutions that we thought would happen five years ago are starting to occur now," says Grubman, launching into yet another sermon about the industry's future. Indeed, people are beginning to believe in telecom again. But preach as he might, Jack Grubman will have a tough time reclaiming his pulpit.

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