In particular, the regulators found that, during 1999-2001, Grubman:
- issued several fraudulent research reports on two telecom stocks (Focal Communications and Metromedia Fiber) that contained misstatements and omissions of material facts about the companies, contained recommendations contrary to the actual views regarding the companies, overlooked or minimized the risk of investing in these companies, and predicted substantial growth in the companies' revenues and earnings without a reasonable basis;
- issued numerous research reports on six telecom stocks (Focal Communications, RCN Communications, Level 3 Communications, XO Communications, Adelphia Business Solutions, and Williams Communications Group) that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts regarding these companies' business prospects, contained exaggerated and unwarranted claims about these companies, and/or contained opinions for which there was no reasonable basis; and
- published a research report in November 1999 upgrading AT&T that contained omissions of material facts and was misleading.
Grubman neither admits nor denies these allegations, facts, conclusions, and findings.
Grubman's $15 million payment is specified in a Final Judgment that, if approved by the Court, will be entered in an action filed by the SEC in Federal District Court in New York City. Of the $15 million total payment, half ($7.5 million) will be authorized by the SEC, NYSE and NASD to be added to a distribution fund for the benefit of SSB customers; that fund will be created in a separate action brought against SSB. The remaining $7.5 million penalty will be paid to the New York Attorney General. Under the terms of the settlement, Grubman agrees that he will not seek reimbursement or indemnification for any amounts he pays under the settlement. In addition, he agrees that he will not seek a tax deduction or tax credit with regard to any federal, state or local tax for any penalty amounts he pays under the settlement.
Under the terms of the settlement, the Final Judgment in the SEC's Federal Court action will enjoin Grubman from violating the statutes and rules he is alleged to have violated.