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New York Probes Citigroup's Link to Preschool

Nov 18, 2002 | Wall Street Journal The New York Attorney General's office is turning up the heat on an exclusive New York City preschool in a bid to bolster a broader case it is developing over alleged research conflicts at Citigroup Inc.'s (C) Salomon Smith Barney securities-firm unit, Monday's Wall Street Journal reported.

Investigators from New York Attorney General Eliot Spitzer's office have interviewed at least two officials from the school, the 92nd Street Y -including Joan Tisch, an influential Y director, and the wife of Loews Corp. Co-Chairman Preston (Robert) Tisch asking about the circumstances surrounding its admittance of twin children of Jack Grubman, Salomon's former top telecommunications analyst, according to people familiar with the matter. Mr. Spitzer's office is investigating allegations that Mr. Grubman had provided overly optimistic research on investment-banking clients in order to obtain lucrative underwriting assignments and other benefits, misleading investors in the process.

The children were admitted into the school around the time that Citigroup pledged a $1 million donation, which came after Mr. Grubman's ultimate boss, Citigroup Chief Executive Sanford I. Weill, urged the analyst to "take a fresh look" at upgrading the stock of a major corporate client, AT&T Corp. Mr. Grubman upgraded AT&T in late 1999.

Citigroup now acknowledges that there was a link between the donation and the nursery-school application of Mr. Grubman's twins. A Citigroup spokeswoman said in a statement: "We have never said there is no connection between the donation and Jack Grubman's effort to get his twins into the 92 street Y nursery school. From the outset we have tried to make it clear: Mr. Grubman sought Mr. Weill's help for the twins in the fall of 1999 and the contribution we ultimately made in the summer of 2000 grew out of that request. However, it is also clear that this request is similar to many we receive from our employees asking for support for the community organizations in which they are involved." A spokesman for the Y, speaking for Ms. Tisch, had no comment, as did a spokesman for Mr. Grubman.

Proving that the school admitted Mr. Grubman's children because of the donation could be important to the broader Citigroup probe by the attorney general's office because it could help investigators determine whether the financial-services company misled investors. This is because Mr. Grubman has said in an e-mail that his children were admitted to the school after he upgraded AT&T stock in 1999 to help Mr. Weill, an AT&T director, curry favor with AT&T CEO C. Michael Armstrong also a Citigroup director to oust Citigroup's former co-Chairman John Reed.

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