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Citigroup Leaks Might Delay Wall Street Reform Plans

Nov 18, 2002 | USA Today

Embarrassing public disclosures about Citigroup threaten to complicate final negotiations aimed at cleaning up tainted Wall Street research and stock-offering practices.

Top lawyers from Wall Street investment banks are under orders to demand that securities regulators give firm assurances that the industry will be spared further damaging revelations in return for signing on to a sweeping reform package being discussed this afternoon at the New York Stock Exchange, according to people with knowledge of the talks.

Senior Citigroup executives are said to be seething after leaks of an internal e-mail and memo last week detailing an intriguing tale involving Citigroup Chairman Sandy Weill, former star Citigroup telecom analyst Jack Grubman and an elite Upper East Side Manhattan nursery school.

The documents suggested Grubman upgraded his rating on AT&T's stock in 1999 to help Weill ingratiate himself with AT&T's chairman and defeat a corporate rival, and that Weill helped Grubman get his children into a prestigious Manhattan nursery school. After news stories appeared, Grubman said he'd exaggerated to impress a colleague at another firm. Weill said the help he gave Grubman was not meant to influence his research.

The contents of the documents, in the hands of investigators for months, were apparently leaked by someone involved in the ongoing Wall Street probe, according to people with knowledge of the situation. New York Attorney General Eliot Spitzer's office, the National Association of Securities Dealers and the House Financial Services Committee have access to the documents. All three groups deny any involvement.

Citigroup executives regard the leaks as a gratuitous attempt to smear Weill, whom Spitzer's office has said is not a target of its investigation.

Other Wall Street firms were also taken aback by the timing of last week's disclosures in The Wall Street Journal and The New York Times, coming as a settlement seemed possible in days.

The settlement is expected to cost Wall Street firms hundreds of millions of dollars in fines and lead to new rules to ensure stock analysts' independence.

But they might now demand regulators' promise not to use damaging e-mails and other documents to further undermine the industry and increase its exposure to expensive class-action shareholder lawsuits.

''Wall Street is not going to have a global settlement until they deal with the thousands of stockholders who lost billions of dollars, thanks to them,'' says Milberg Weiss attorney Bill Lerach, whose firm files more than half of all shareholder class actions nationwide.

While saying he wants to reform, not destroy the industry, Spitzer continues to warn that evidence is mounting against many firms and that criminal charges have not been ruled out.

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