Updated from 1 p.m. EDT

It seems Jack Grubman, Salomon Smith Barney's embattled telecom analyst, did a bit more than attend three



board meetings and spend some of his free time rubbing shoulders with Bernard Ebbers.

Back in 1997, when WorldCom was locked in a heated battle with

British Telecommunications


to acquire MCI Communications, Grubman served as one of WorldCom's official solicitors of shareholder proxies in the contest ultimately won by WorldCom. Joining Grubman in that important task were six Salomon investment banking executives.

Salomon, which is owned by


(C) - Get Report

, served as WorldCom's principal financial adviser in the telecom deal. And ever since, Salomon has been WorldCom's main bond underwriter. Grubman, meanwhile, gained a reputation on the Street as one of WorldCom's biggest boosters, often referring to it as a "must-own stock" in research reports. He's acknowledged having a friendly relationship with Ebbers.

Little Precedent

Several securities lawyers say that while it's not uncommon for investment bankers advising a company to serve as proxy solicitors -- especially in a contested corporate takeover -- they couldn't recall seeing a Wall Street research analyst serving in that capacity.

"It's rare and unusual," says Howard Schneider, a corporate lawyer with New York's Katten Muchin Zavis Rosenman. That's a sentiment also echoed by Lewis Lowenfels, a New York securities lawyer and frequent commentator on corporate law developments.

"I find it very troubling," says Jill Fisch, a professor of corporate law at Fordham University School of Law. "It's an acknowledgment by WorldCom that he has crossed the line in one way or the other. He is not acting as an independent objective analyst and you have to be troubled by the fact that this was buried in the proxy disclosure."

Grubman on Monday told a congressional panel investigating the $3.8 billion accounting fraud at WorldCom that over the past dozen years he'd sat in three WorldCom board meetings to offer some "market color" about several prospective transactions the Mississippi-based company was considering. The star analyst, whose compensation ranged between $15 million and $20 million during the heyday of the telecom industry, said he didn't publish any research reports during the time he was "over the wall" working with WorldCom.

That's a reference to the so-called Chinese Wall, which is supposed to maintain a separation between the investment bankers and stock analysts at Wall Street brokerage firms.


But there was no discussion at the hearings about Grubman's designation as proxy solicitor in what would prove to be WorldCom's most important deal -- the one that turned a bit player in the long-distance business into a global competitor. In fact, it seems that Grubman's role in the proxy battle largely has gone unnoticed until now.

Grubman was one of 21 designated proxy solicitors whose names appear on a statement filed by WorldCom with the

Securities and Exchange Commission

in October 1997. Most of the solicitors were officers and directors of WorldCom. The proxy statement, which was directed at the former shareholders of MCI Communications, states that proxies were to be solicited by WorldCom executives and "other representatives" by a variety of methods, including mail, telephone and in person.

Citigroup, meanwhile, is downplaying Grubman's involvement, calling it old news and something that had been fully disclosed in SEC filings at the time of the WorldCom and MCI merger.

"We don't see the news value in something that was perfectly appropriate and publicly disclosed five years ago," says Citigroup spokesman Duncan King.

While the situation involving Grubman is rare, it's not unprecedented. When Charlotte, N.C.,-based



launched an unsuccessful hostile takeover bid for auto-parts manufacturer


in 1998, a

CIBC Oppenheimer

equity analyst served as a proxy solicitor along with several CIBC investment bankers.

But unlike Grubman, who was covering WorldCom at the time of its deals with MCI, the CIBC analyst wasn't yet issuing any research reports on SPX. Tina Betlejewski, an SPX spokeswoman, says the analyst, David Garrity, started covering the company after the hostile bid for Echlin failed. Garrity, who is no longer with CIBC, couldn't be reached for comment. CIBC didn't return phone calls.

When a shareholder signs and submits a proxy form, he's giving his right to a designated party to vote his shares a specific way. In a contested merger, the rival companies often wage an aggressive advertising and solicitation campaign for shareholder votes. So the role of a proxy solicitor can be a pivotal one in securing enough shareholder votes to complete a deal.

"It's not a passive

role and not an unbiased one,"' says Anjuli Mangat, a spokeswoman for the Institutional Shareholder Service, an organization that often issues critical recommendations on which way shareholders should vote in contested proxy fights. "The solicitors go out and try to solicit votes on behalf of our recommendation."