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Question of Influence At Citigroup

Nov 14, 2002 | Newsday

Citigroup Inc. chairman Sanford I. Weill has admitted he asked former high-profile telecommunications analyst Jack Grubman to "take a fresh look" at AT&T Corp., but he has denied pushing the former high-profile analyst to change his rating on the telecommunications giant.

During the recent flurry of investigations into research practices at leading firms, questions have circulated about whether Weill attempted to influence the rating Citi gave to AT&T. The Citigroup chief executive is on the AT&T board, and AT&T chief executive C. Michael Armstrong is on the Citi board.

Speculation about Weill's role increased yesterday when the Wall Street Journal published details of an e-mail sent by Grubman to an unnamed money manager in Jan. 2001.

In the e-mail, Grubman said he decided to upgrade his recommendation on AT&T stock so Weill could "nuke" his co-chairman, John Reed, with the support of Armstrong. Reed retired in 2000.

However, in a public statement yesterday, Grubman, who worked for Citigroup's Salomon Smith Barney unit until resigning in August, said he made up the story.

"Regrettably, I invented a story in an effort to inflate my professional importance and make an impression on a colleague and friend," Grubman said in the statement. "My research on AT&T was always done on the merits. It was not designed to help Salomon Smith Barney get investment banking business, nor was it designed to influence Mike Armstrong's vote on Citigroup board matters."

New York Attorney General Eliot Spitzer's office has been investigating whether Citigroup's top executive inappropriately pressured Grubman to boost his rating on AT&T Corp. stock so that the firm could win millions of dollars of business to advise the telecommunications giant on financial deals.

Citigroup officials said the suggestions in the e-mail that Weill had asked Grubman to change his rating to please Armstrong and so get his support in a bid to oust Reed were "baseless" and "pure fantasy."

In a memo to Citi staff, Weill conceded he had asked Grubman to re-examine his "neutral" rating on AT&T.

"I did suggest to Jack Grubman that he take a fresh look at AT&T in light of the dramatic transformation of the company," Weill said.

However, he emphatically denied there was any connection between Armstrong's vote on Reed's departure and Grubman's rating.

When Citigroup was created two years ago, Reed, the chief executive of Citicorp, and Weill, the chief executive of Travelers, tried to head the company together as co-chairmen, an arrangement that drew skepticism from industry insiders and Wall Street. While Reed brought technology and commercial banking to the new company, Weill brought investment banking and political savvy, which he eventually used to oust Reed, many analysts believe.

Seven months into the merger, Citigroup's board of directors voted to shift key responsibilities from Reed to Weill. Months after that, Reed retired.

"There's no doubt that Sandy got rid of John," said Richard X. Bove, managing director at Hoefer & Arnett, a Florida-based stock brokerage and investment bank.

In addition, Weill's admission that he nudged Grubman to "take another look" may not overtly suggest that Weill pressured him to change a rating, but the implication is there, Bove said.

Sources familiar with the matter said that while AT&T executives may have been displeased with the negative Grubman reports, the telecommunications giant still selected Citigroup unit Salomon Smith Barney as one of the lead advisers in eight of its last nine debt or stock offering deals.

A Tangled Web of Words

Jack Grubman. His stock ratings and his relationships with several companies are the subjects of several inquiries. Grubman resigned from Citi subsidiary Salomon Smith Barney in August after questions were raised about his practices, including whether he had been influenced to change his call on AT&T, where C. Michael Armstrong, a Citi board member, was chairman and CEO. The Wall Street Journal yesterday published details of an e-mail in which Grubman said Weill pushed him to review his AT&T rating so Weill could "nuke" his co-chairman, John Reed. Grubman now says he "invented" the story about Weill pressuring him.

John Reed. Little has been heard from the former Citicorp chief executive since he retired from Citigroup. Many analysts believe he was squeezed out of the co-chairman role by Sanford Weill. The suggestion in Jack Grubman's e-mail is that Weill sought AT&T chief executive C. Michael Armstrong's favor in order to move Reed aside - a charge denied by both Weill and, after the release of the e-mail, Grubman. Reed, who could not be reached for comment, now spends much of his time lecturing on finance and writing. Last year, he started the John and Cindy Reed Foundation, which emphasizes educational and environmental issues.

Eliot Spitzer. The state Attorney General has shaken up Wall Street by launching highly publicized probes into corporate heavyweights such as Citigroup and Merrill Lynch. He is reportedly interested in examining if Sanford Weill had any role in influencing stock ratings. He is also investigating the practice of "spinning" at Wall Street firms, where favored clients gain access to lucrative initial public offerings of companies in exchange for their investment banking business. Spitzer's big weapon in investigating several firms is copies of e-mails sent by leading analysts to colleagues and industry clients.

Sanford Weill. The Citigroup chief executive has been under Eliot Spitzer's investigative spotlight. Weill admits he told his company's then-star analyst Jack Grubman to re-examine his rating on AT&T, but he denies he requested Grubman to upgrade the stock to secure investment banking business or to help secure the support of AT&T's boss in a bid to oust John Reed. Weill was an AT&T board member. From humble Brooklyn beginnings, Weill's greatest accomplishment was bringing together insurance company Travelers, where he was chief executive, and New York bank Citicorp, where Reed was chief executive, to create Citigroup.

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