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Salomon Smith Barney: Worst Offender, Top Fine

Apr 29, 2003 | USA TODAY

Citigroup's Salomon Smith Barney unit was first among the worst, according to Monday's settlement between regulators and 10 investment banks. To settle charges stemming from allegations that it slanted research to support a voracious appetite for investment banking fees, Citigroup agreed to pay $400 million, the largest fine among those involved.

Regulators singled out telecom research analyst Jack Grubman, who'll pay $15 million in fines and restitution. He earned $67.5 million between 1999 and August 2000, when he left the firm.

A restitution fund managed by the Securities and Exchange Commission will get $150 million of Salomon's fines. Citigroup will pay $150 million to states and regulators. The final $100 million will help fund an investor education effort.

Hundreds of documents obtained by New York Attorney General Eliot Spitzer paint a picture of a firm that perverted the stock analyst role from researcher to booster for its investment bankers. Regulators allege that Grubman, who helped his firm win about $790 million in banking fees, issued ''fraudulent'' reports on two clients, Focal and Metromedia Fiber Networks. On Feb. 1, 2001, Grubman issued a buy recommendation on Focal, but in an e-mail to an institutional investor he admitted Focal was overpriced.

Regulators also alleged that Grubman upgraded his opinion of AT&T without disclosing a conflict: In return for the positive opinion, Citigroup CEO Sandy Weill made a $1 million contribution to an exclusive preschool in Manhattan, ensuring that Grubman's two children could go there.

Salomon Smith Barney was also accused of ''spinning,'' parceling out shares of hot IPOs to top executives at companies that gave or could give significant investment banking business to the firm. Citigroup neither admitted nor denied the allegations. Grubman also will be barred from the securities industry.

Three weeks ago, Citigroup renamed the tainted Smith Barney unit Citigroup Global Markets.

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