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In an unusually sharp ruling, a National Association of Securities Dealers arbitration panel in Boca Raton, Fla., has awarded damages against brokerage firm Salomon Smith Barney for breach of fiduciary duty to a former employee of WorldCom. A three-person panel awarded $75,000 to Jupiter resident Janet Naples, a 17-year employee of WorldCom. The panel found that Salomon had a fiduciary duty to Naples because it “actively sought and willingly accepted exclusive stewardship” of a WorldCom stock option program Naples participated in, leaving her “no choice” but to rely on the broker for “the disposition of any transaction involving” the options. The ruling issued last month appears to be the first to establish any duty by Salomon to the many WorldCom employees in the options plan. In strong language for an NASD opinion, the panel blasted Salomon for its conduct. “While [Salomon] scrambled around to preserve their relationship with WorldCom,” the panel wrote, “they violated one of the most sacrosanct tenets at the foundation of the markets.” “If [Salomon] had any fiduciary duty to any investor of WorldCom securities,” the panel concluded, “such duty was automatically breached by its familial relationship with WorldCom.” Naples’ attorney, Adam Doner of Gordon & Doner in Palm Beach Gardens, said the award was fully justified. “She was one of the top 5 percent salespeople for the company,” Doner said. “Now her retirement nest egg has been totally wiped out.” Naples also was represented by Michael Lynch of Hooper & Weiss in Orlando. Citigroup spokeswoman Kim Atwater said the NASD panel’s conclusions “largely supported our position … but were mistaken on the matter of law regarding fiduciary responsibility.” There was no such responsibility, she argued, because Naples “never contacted [Salomon] about the options to do something about them.” Citigroup is the parent company of Salomon Smith Barney. Securities litigation expert William Nortman, a shareholder at Akerman Senterfitt in Fort Lauderdale, agreed that the panel was on shaky legal ground. “Unless the broker had more than a purely custodial role, it’s hard to see what aspect of duty was breached,” he said. “The ruling could be just another manifestation of the widely held idea that if somebody lost money, someone should compensate them.” But Doner said the ruling may clear the way for as many as 1,500 other WorldCom workers who participated in the company’s employee compensation plan to win similar awards. That plan included stock options that became worthless after the telecommunications giant sought bankruptcy protection two years ago amid charges of massive fraud. Doner said he leads a consortium of attorneys who represent more than 1,000 other former WorldCom employees like Naples, and that there are an additional 300 to 500 similarly situated potential claimants. He predicted that the NASD award also would impact the cases of an estimated 14,000 WorldCom investors who opted out of a national class action against the company and may submit their claims for NASD arbitration. Salomon, now Citigroup Global Markets Inc., was represented in the arbitration by attorney Tucker Byrd, a shareholder at Greenberg Traurig in Orlando. Salomon has drawn fire in a number of investigations and lawsuits for its cozy relationship with WorldCom. Last year, Salomon paid $300 million in fines to settle securities fraud charges brought by New York Attorney General Eliot Spitzer and other regulators over its alleged misrepresentations of WorldCom stock. Last May, the company settled the national class action brought by WorldCom investors for $2.65 billion, and announced that it had set aside an addition $6.7 billion for “all remaining exposure” to “litigation related to the 2003 regulatory settlements.” E-MAIL EVIDENCE In Naples’ case, the value of her WorldCom stock options grew in the technology stock boom of the 1990s, peaking in value at more than $600,000 before the market collapsed. Naples had sought $1.15 million in compensatory damages. Nortman said the size of Naples’ award relative to damages sought indicated that the panel made “a token gesture, out of sympathy.” But Doner said the award was significant in that Salomon got “no free pass.” Naples also had named former star Salomon analyst Jack Grubman personally as a respondent in the arbitration. Grubman, who earned millions touting WorldCom and other telecom stocks to the public, paid a $15 million fine as part of the 2003 Wall Street settlement with Spitzer and was banned from the securities business for life. But the NASD panel absolved Grubman of liability to Naples, finding that she had not “directly rel[ied] upon” or “materially base[d] her investment decisions” about WorldCom on his research. Naples’ attorneys were barred from introducing into evidence either the 2003 regulatory or 2004 class action settlements. WorldCom admitted no wrongdoing in either case. Doner said the key evidence in Naples’ case included e-mails uncovered in the class action discovery and by examiners for the bankruptcy court. Some e-mails showed Grubman coaching WorldCom’s then-chief executive Bernard Ebbers and then-chief financial officer Scott Sullivan on how to disguise the company’s financial condition in investor conference calls. Others revealed Citigroup’s discussions on the handling of Ebbers’ margin loans. In its decision, the NASD panel slammed Salomon for a “continuing conflict of interest.” It found that Salomon was motivated by the desire to preserve its relationship with WorldCom and “the extraordinary fees they were generating monthly there from” — “in excess of 160 million dollars … during the four-year period” of the WorldCom fraud. Salomon “bent over backwards” to provide “creative financing deals” to Ebbers, the panel concluded, in order to keep Ebbers from having to sell WorldCom stock he held on margin, which would have triggered a collapse in the stock’s price. Doner expressed optimism about arbitrating the claims of his other clients from the WorldCom stock option plan. “As we get further from New York and the other urban centers, the more distrust of Wall Street we find,” he said. “The [NASD] panels hate it when they see a local person get burned.” Nortman — even while questioning the soundness of the panel’s ruling — agreed that it could be an evil portent for Salomon. “This award isn’t binding on other panels,” he said. “But it can be introduced to them. It could very well influence their judgment.”

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