MORE TROUBLE IN THE CITIOct 11, 2002 | NYPOST.COM The waters are rising around embattled Citigroup's savvy CEO, Sandy Weill.
Weill's former star telecom analyst, Jack Grubman, has turned on his former boss, and the song he's singing to prosecutors seems to suggest that Weill was behind some of the allegedly false research at the center of regulators' probes.
Grubman, who resigned from Citigroup's Salomon Smith Barney investment bank in August under pressure from management and pocketed a cool $32 million for his troubles is telling New York Attorney General Eliot Spitzer that Weill made him raise ratings on a telecom stock in order to keep investment banking fees rolling into the firm's coffers.
With Grubman appearing to be solidly in the AG's pocket, experts wonder whether Weill's long reign on Wall Street could be over.
"These types of e-mails and correspondence directly tie Sandy Weill to the analysts' conflict of interest," said former SEC official Robert Heim, a partner at Meyers & Heim. "This could lead [prosecutors] to allege that [Weill] was a conspirator in the scheme to inflate the stock price of investment banking clients."
Broad settlement talks between Citigroup, the AG and the SEC and other regulators have been productive, insiders said.
Still, the AG could always go after Weill later, said a source close to the probes. Spitzer's office declined to comment; and Grubman's lawyer did not return a call for comment.
At the crux of the latest firestorm is an embarrassing memo that Grubman reportedly has turned over to Spitzer. The Grubman note allegedly written at Weill's behest contains a groveling apology to AT&T chairman Mike Armstrong for having panned the company.
At the time the note was written, Weill sat on AT&T's board, and Armstrong sat on the board of Citigroup.
Moreover, after Grubman upped his rating on AT&T, Salomon Smith Barney took in $44.8 million in fees for helping take AT&T wireless public.
Once the underwriting was completed, Grubman again dropped his rating on the company.
Citigroup officials said in a statement yesterday that the company is "making reforms" and is in "active settlement discussions with regulators," and so cannot comment further except to say it's "simply untrue" that Weill told his analysts what to write.
Many expect Weill to survive. "This is a board that is so loyal to Weill that I'm sure they would dig in their heels," said Jeffrey Sonnenfeld, associate dean at the Yale School of Management.