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Citigroup Unit To Pay $5M NASD Fine

Sep 23, 2002 | AP Citigroup Inc.'s investment banking division agreed to pay a $5 million fine Monday to settle charges it issued "materially misleading" research reports.

In a related matter, the self-policing arm of the securities industry filed a complaint against star telecommunications analyst Jack Grubman and his assistant, Christine Gochuico, for authoring the reports.

The National Association of Securities Dealers found that Salomon Smith Barney's reports on Winstar failed to adequately disclose the risks of investing in shares of the broadband telecommunications service provider, which filed for bankruptcy protection last year.

The reports consistently praised Winstar and belittled other analysts who were critical of the company.

The complaint against Grubman and Gochuico charges that e-mails and other internal Salomon documents showed that they publicly recommended Winstar to investors but expressed contrary views in private.

"What occurred in this case was a serious breach of trust between Salomon and its investors," said Mary L. Schapiro, NASD's president of regulatory policy and oversight. "It should go without saying that reports issued for investors' use must be truthful."

Salomon agreed to the fine without admitting or denying the findings. Lawyers for Grubman and Gochuico did not immediately return telephone messages seeking comment.

Citigroup worked with the NASD to settle the matter and is pleased with the outcome, according to a memo sent to employees by Charles Prince, the firm's chairman and chief executive of its Global Corporate and Investment Bank.

"We are determined to take a leadership position in establishing higher standards for Wall Street research," Prince said in the memo.

The settlement resolves the investigation focusing on Winstar, but does not "address other, larger Salomon-related research analyst investigations currently underway by NASD and other regulators," the group said in a statement.

Wall Street analysts have been under fire for much of this year, accused of pandering to the companies they cover in return for receiving lucrative investment banking fees for arranging merger and acquisition deals and initial public stock offerings.

Merrill Lynch & Co. earlier this year agreed to pay a $100 million fine after investigators for New York's attorney general uncovered e-mails from that firm's analysts privately disparaging companies they touted to the public.

Grubman was one of the most influential stock analysts and power brokers of the technology boom. He left Salomon in August amid investigations into his alleged conflicts of interest in touting the shares of WorldCom, Global Crossing and other failed telecommunications companies.

A congressional committee is investigating whether Salomon and Grubman gave WorldCom special access to shares of hot new stock offerings as an inducement for investment-banking business. The panel recently issued a subpoena for documents to Citigroup.

Grubman, whose annual pay reportedly topped $20 million in recent years, was unwavering in his recommendations of many high-flying companies who were also Salomon clients.

Critics charge that those positive ratings, which often sent stocks soaring, were used as a reward for companies that brought their investment banking business to Salomon.

Grubman has been targeted by at least 46 consumer complaints and lawsuits, many of them related to the WorldCom collapse.

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