Citigroup Investigation Now Leads to Door of Elite Nursery SchoolNov 14, 2002 | Wall Street Journal The conflict-of-interest investigation into some of Wall Street's heaviest hitters took yet another strange turn, Thursday's Wall Street Journal reported.
Salomon Smith Barney's former star research analyst, Jack Grubman, acknowledged that he wrote an "embarrassing" e-mail saying he upgraded his rating of AT&T Corp. in late 1999 to help his ultimate boss, Citigroup Chief Executive Sanford I. Weill, win a power struggle. But Mr. Grubman said the claim was fabricated, adding that he "invented a story in an effort to inflate my professional importance."
In a statement that could raise questions about his credibility as investigators pursue a possible conflict-of-interest case into stock research, Mr. 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." He added: "The contents of these particular e-mails, while personally embarrassing, are completely baseless."
Still, investigators in the New York State Attorney General's office are pursuing the earlier e-mail claim and another odd trail: Mr. Grubman also confided in an e-mail that he changed his AT&T rating in part because Mr. Weill agreed to use his influence to help Mr. Grubman's twins get into an exclusive nursery school in New York, according to people who have reviewed the electronic message.
Whether this claim was serious or in jest isn't clear, these people said. But investigators are looking closely at a $1 million donation pledged by Citigroup's philanthropic arm in 2000 to the 92nd Street Y, which, among other things, runs the school in Manhattan. They are attempting to determine whether the pledge might have been linked to efforts to get the organization to look favorably on the application by Mr. Grubman, the former telecommunications analyst at Citigroup's investment-banking unit, who earned $20 million a year.
The reference to the nursery-school application was made in the same series of e-mails that Mr. Grubman sent in January 2001 to an analyst at a money- management firm. In these messages, as reported Wednesday in The Wall Street Journal, Mr. Grubman said that Mr. Weill pushed him to review his rating of AT&T stock to gain the support from AT&T CEO C. Michael Armstrong, a Citigroup director, to help "nuke" Citigroup's former co-chairman, John Reed, in early 2000.
For its part, Citigroup also disputed the claims that Mr. Grubman made in the e-mails, calling the assertions "pure fantasy." In a statement, the financial- services giant said any suggestion that Mr. Grubman upgraded AT&T as part of Mr. Weill's effort to win the support of Mr. Armstrong "is nonsense." It added, " Regulators have already received unequivocal sworn testimony from Mr. Grubman that they [the e-mails] are `fabrications' with `zero basis' in reality."
Mr. Weill also stated in a memo to senior management released 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."
However, for the first time Mr. Weill publicly acknowledged that he did ask Mr. Grubman, who long had a negative rating on AT&T, to re-examine his view. "I did suggest to Jack Grubman that he take a fresh look at AT&T in light of the dramatic transformation of the company and the industry," Mr. Weill noted, however, "I always believed that Mr. Grubman would conduct his own research and reach independent conclusions that were entirely his own."
Mr. Weill also stated that his intervention on behalf of Mr. Grubman's children was done "because he was an important employee who asked for my help. It is therefore deeply upsetting that my intentions were so grossly distorted in this e-mail." He added: "Although my effort to help an employee's children is what led me to call the 92nd Street Y, the Y is a superb institution and our support is consistent with Citigroup's philanthropic efforts."
The e-mails in question are being examined by New York State Attorney General Eliot Spitzer as part of his broad investigation of conflicts at Salomon Smith Barney, people familiar with the matter say.