Analyst Says He Made Up Stock ClaimsNov 13, 2002 | AP Jack Grubman, a star Wall Street analyst during the heyday for technology stocks, said Wednesday that he made up a story about how he used his ratings of AT&T stock to help his boss win a power struggle at Citigroup Inc.
Grubman said the story, sent by him in e-mail memos to another analyst, was just baseless boasting on his part. "I invented a story in an effort to inflate my professional importance and make an impression on a colleague and friend," he said in a statement.
Grubman, who worked at Citigroup's Salomon Smith Barney brokerage, is among analysts under investigation and is named in shareholder lawsuits over alleged manipulation of stock ratings. He resigned in August but insists he never issued a biased rating.
He was responding to a Wall Street Journal story that disclosed the e-mail, in which Grubman said Citigroup chief executive Sanford Weill pushed him to review his rating of AT&T stock to curry favor from AT&T CEO C. Michael Armstrong, a Citigroup board member, in a bid to oust a boardroom rival.
Weill also denied the account in a memo sent to employees and made public by the company. "I have said before, and will say again: I never told any analyst what he or she had to write and I never would," he said. "Nor would I ever attempt to manipulate a board member's vote. Any suggestion that I did is just wrong."
Weill said the New York state investigators who first uncovered the e-mail had already been told the story was made up, and he expressed anger that it had been leaked.
In the late 1990s, Grubman became one of Wall Street's most powerful analysts. His advice was sought and closely followed by both top executives making billion-dollar deals and small investors who staked their savings.
When technology stocks collapsed and many high-flying companies such as Global Crossing and WorldCom fell in bankruptcy or scandal, he and other leading analysts were accused of touting weak stocks to lure business to their companies.
In a filing with the Securities and Exchange Commission on Wednesday, Citigroup said Grubman and its Salomon Smith Barney unit have been named in some 62 class-action complaints.
New York State Attorney General Eliot Spitzer, who has been probing conflicts of interest at Wall Street firms involved in researching and trading stocks, uncovered the e-mail from Grubman, according to the Journal.
Spitzer is interested in what role Weill had in Salomon's AT&T rating, including an upgrade by Grubman right before the telephone giant was planning a massive stock sale to finance its wireless unit.
Last month, Citi said it was separating its stock research from its investment banking operation, which is in line with an industrywide restructuring being drawn up by federal and state regulators.
In the e-mail memo, Grubman said Weill was seeking Armstrong's support to "nuke" Citi's then co-chairman John Reed, the Journal said, citing people who have reviewed it. Reed retired in April 2000 after two years of clashing with Weill following the $37 billion merger of Reed's Citibank and Weill's Travelers Group.
In his statement Wednesday, Grubman said, "I have said a number of inappropriate, even silly, things in a few private e-mails that have been made public over the last few months. The contents of these particular e-mails, while personally embarrassing, are completely baseless.
"My research on AT&T was always done on the merits," he said. "It was not designed to help Salomon Smith Barney get investment banking business, nor was it designed to influence Mike Armstrong's vote on Citigroup board matters."
John Coffee, a Columbia University law professor who specializes in securities fraud, called Grubman's statement "self-serving."
"Saying he lied about being vital to his boss is not unlawful, but if his e-mail is the truth then he'd be violating federal securities laws," Coffee said. "It does certainly make Sandy Weill and Citigroup look bad, though."
Grubman has a history of exaggerating his importance. Two years ago, he acknowledged to Business Week magazine that he once pretended to have graduated from the Massachusetts Institute of Technology instead of his real alma mater, Boston University.
Weill said in his statement that he had only suggested to Grubman that he "take a fresh look at AT&T in light of the dramatic transformation of the company and the industry. I always believed that Mr. Grubman would conduct his own research and reach independent conclusions that were entirely his own."