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E-Mails Said to Show Grubman Boasted That AT&T Upgrade Had Different Goal

Nov 13, 2002 | Wall Street Journal

For months, regulators have been investigating whether Citigroup Inc.'s Salomon Smith Barney unit upgraded its rating of AT&T Corp. stock in 1999 to win a lucrative financing deal from the telecommunications giant, Wednesday's Wall Street Journal reported.

But Jack Grubman, the Salomon telecommunications analyst at the center of it all, at one point boasted that there was another intriguing goal to his stock- rating change.

In a series of e-mail messages in January 2001, Mr. Grubman indicated to an analyst at a money-management firm that Citigroup Chief Executive Sanford I. Weill pushed him to review his rating of AT&T stock for a different reason: Mr. Weill wanted to gain the support from AT&T CEO C. Michael Armstrong, a key Citigroup board member, to help "nuke" Citigroup's former co-chairman, John Reed, in early 2000, people close to the matter say.

The ouster of Mr. Reed in February of that year by Mr. Weill capped a high- profile power struggle between two of the savviest corporate infighters on Wall Street. At the time of the AT&T upgrade, Messrs. Weill and Reed were locked in a battle for control of the financial-services behemoth, which was created in April 1998, when Travelers Inc., run by Mr. Weill, agreed to merge with Citicorp, run by Mr. Reed. Valued at $83 billion, it was the largest-ever corporate merger at the time.

In one electronic message, Mr. Grubman specifically said he upgraded AT&T because Mr. Weill needed the support of Mr. Armstrong to "nuke" Mr. Reed, according to people who have reviewed it.

The e-mails, which have been uncovered by New York State Attorney General Eliot Spitzer, could simply be idle swagger from Mr. Grubman, who was one of the most influential analysts on Wall Street before he resigned from Salomon, under pressure, in August. People close to the situation say Mr. Spitzer's office has confirmed the authenticity of the e-mails. It isn't clear what relationship Mr. Grubman had with the money-management analyst, whose identity hasn't surfaced, and what prompted Mr. Grubman to make the claim or whether the statement is true at all.

Why Mr. Weill would need to curry favor to get Mr. Armstrong's support also is unclear. Mr. Weill and Mr. Armstrong have worked closely together over the years: Mr. Armstrong has been on the boards of Citigroup predecessors that Mr. Weill has run since the early 1990s. Mr. Weill has been on the AT&T board since 1998, though he recently announced plans to step down from that post.

Mr. Grubman's e-mails have emerged as part of Mr. Spitzer's broad investigation of conflicts at Salomon Smith Barney, people familiar with the matter say. Mr. Spitzer has turned over copies of the messages to Citigroup's board, these people say.

Mr. Grubman's lawyer, Lee Richards, didn't return telephone calls seeking comment. Citigroup, speaking for Mr. Weill, declined to comment. An AT&T spokesman said: "We are not aware of any facts that support such an allegation and believe that Mike Armstrong only considered Citigroup shareholders when making any decision that he faced as a director." Mr. Reed didn't return a call seeking comment.

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