More Details On Message By Ex-Analyst For CitigroupNov 15, 2002 | The York Times
Jack B. Grubman, the former Citigroup analyst, boasted in an e-mail message early last year that he and Sanford I. Weill, Citigroup's chairman, had played C. Michael Armstrong, the chief executive of AT&T, "like a fiddle," according to two people who have seen the message.
In the e-mail message, which Citigroup turned over to regulators investigating conflicts of interest at Wall Street firms, Mr. Grubman told a friend that he had temporarily raised his rating on AT&T's stock to accomplish two goals. One was to gain Mr. Armstrong's support in Mr. Weill's struggle for control of Citigroup; the other was to secure Mr. Weill's help in getting Mr. Grubman's children into an exclusive nursery school in Manhattan.
Once he and Mr. Weill got what they wanted, Mr. Grubman wrote, "I went back to my normal negative self" on AT&T and lowered his rating on AT&T stock. Mr. Armstrong, he added, "never knew that we both played him like a fiddle," said the people who have seen the e-mail message, parts of which have been reported over the last two days.
A call to Mr. Grubman's lawyer, Lee S. Richards, was returned by a spokesman, who did not respond to a request for comment. On Wednesday, Mr. Grubman said he had concocted the claim that he had helped Mr. Weill win the power struggle "to inflate my professional importance."
A Citigroup spokeswoman, Leah Johnson, said yesterday that no company official had any more to say about the matter. Mr. Weill on Wednesday dismissed Mr. Grubman's claim as "sheer nonsense," saying that he "would never attempt to manipulate a board member's vote."
But investigators see the document as a confession by Mr. Grubman that he had fraudulently misled investors about his true opinion of AT&T's prospects. Mr. Grubman, the most powerful telecommunications analyst on Wall Street during the 1990's, held a negative view on the company for a long time before he raised his rating in November 1999. In October 2000, he lowered his rating on the stock to "neutral" again.
Mr. Weill acknowledged in a statement Citigroup released on Wednesday that he had asked Mr. Grubman, in late 1998 or early 1999, to "take a fresh look" at AT&T. Mr. Weill said he had not tried to put pressure on the analyst to raise his rating, but other analysts this week questioned how such a request from the chairman could be perceived otherwise.
During the 11 months when Mr. Grubman rated AT&T's stock a "buy," the company hired the Salomon Smith Barney investment banking unit of Citigroup to underwrite the initial public offering of stock in AT&T's wireless unit. Salomon received fees of about $45 million in that deal.
Many of Salomon's competitors said they thought Mr. Grubman had changed his rating on AT&T simply to help Salomon's bankers land the underwriting assignment. But in the e-mail message, Mr. Grubman said that was a misconception.
He and Mr. Weill had different ulterior motives, Mr. Grubman explained in the message, which he sent to Carol Cutler, a friend who worked for a money management company in New York. Ms. Cutler could not be reached for comment.
Mr. Weill wanted to sway Mr. Armstrong, who is a director of Citigroup, to side with Mr. Weill in his struggle for power with John S. Reed. Mr. Reed, the former chairman of Citicorp, was co-chairman and co-chief executive of Citigroup, after the company was formed by the combination of Citicorp and Travelers Group.
Mr. Weill needed Mr. Armstrong's vote to "nuke" Mr. Reed in the showdown between the men for sole control of Citigroup, Mr. Grubman wrote, the people who have seen the e-mail message said. Mr. Reed resigned from Citigroup in February 2000.
Mr. Grubman wanted Mr. Weill's help in getting his twins into the nursery school run by the 92nd Street Y. He got that and more.
Mr. Weill, other directors of Citigroup and at least one other powerful person in business contacted directors of the 92nd Street Y seeking to help Mr. Grubman's children, said people involved in the investigation or close to members of the Y's board. Citigroup also followed up with a pledge to give $1 million to the Y over five years, starting in 2000.
Mr. Grubman is "already in a hole and now he's adding thoroughly credible reasons why he would distort his advice," said John Coffee, a law professor at Columbia University. Among those reasons are that he wanted help getting his children into school and that "he really wanted to impress this woman," Mr. Coffee said, referring to Ms. Cutler.
"It doesn't matter which of these reasons is right," he said, "either one of them is digging a deep hole. All the law cares about is that you knowingly provided to investors inflated advice."
A person involved in the investigation of Citigroup and Mr. Grubman said Citigroup officials would not deny that the company gave the money to the Y to get Mr. Grubman's children admitted to the nursery school.
In a memorandum to Citigroup managers that the company released late Wednesday, Mr. Weill acknowledged that he made a call on behalf of Mr. Grubman's children. "I tried to help Mr. Grubman because he was an important employee who had asked for my help," Mr. Weill said in the memorandum.
A spokeswoman for the 92nd Street Y, Alix Friedman, declined yesterday to discuss how Mr. Grubman's children were admitted to the school. She said that "no child is guaranteed admission" and that every applicant "goes through the same thoughtful, careful" screening process.
Citigroup's contribution to the Y is being used to underwrite lectures, readings and dance recitals through 2004, according to Ms. Friedman. It was not made by the Citigroup Foundation, the company's philanthropic arm, but came out of corporate funds, according to the foundation's 2001 annual report.
The annual installment of $200,000 accounted for more than 5 percent of the $3.56 million in corporate grants, the report said. The company made few corporate grants larger than the one it made to the Y in 2000.