Telecom Analyst Grubman Trumped Up Citigroup StoryNov 14, 2002 | Bloomberg News
Jack Grubman says he made it all up.
The former Salomon Smith Barney analyst wrote in an e-mail in January 2001 that his boss, Citigroup Chief Executive Sanford Weill, asked him to reconsider his rating on AT&T to win support for a boardroom power struggle. Grubman fabricated the story to "inflate my professional importance," he said yesterday.
The retraction may complete the fall from grace for a telecommunications analyst who in the late 1990s earned more than $20 million a year and was invited into the boardrooms of the companies he covered to discuss strategy.
In the past year, the 49-year-old son of a professional boxer has been pushed out of Citigroup, grilled by members of Congress, and pursued down the street outside his Manhattan townhouse by a reporter for CNBC.
"I am astonished," said Michael Stead, who helps manage Citigroup shares at Wells Capital Management. "That guy needs his head examined."
Grubman's e-mail to an unidentified "colleague and friend" was uncovered by New York Attorney General Eliot Spitzer, who is probing whether securities firms improperly influenced analysts to promote their investment banking business. Grubman today said that while the e-mail was false, his recommendation to buy AT&T was made "on the merits."
Grubman declined to comment beyond his statement.
In the e-mail, Grubman wrote that Weill needed the support of C. Michael Armstrong, AT&T's chairman and a Citigroup board member, to "nuke" John Reed as co-chairman of Citigroup, the Wall Street Journal reported, citing a person who has reviewed the message. Reed left Citigroup in April 2000, leaving Weill as the sole chief executive.
Grubman's e-mail was "false and inflammatory," Weill said in a memo to Citigroup staff today. "Regulators have already received unequivocal sworn testimony from the author of the e-mails that they are 'fabrications' with 'zero basis' in reality."
Spitzer is looking into whether Grubman started recommending AT&T shares in November 1999 to win Salomon a role in underwriting a $10.6 billion share sale of the telephone company's wireless unit. Grubman changed his investment rating on AT&T to "buy" from "neutral" after Weill asked him to "take a fresh look" at AT&T.
The upgrade of AT&T 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," said Grubman, who received a $32.2 million severance package from Citigroup when he quit under pressure in August, people familiar with the matter said.
He called his e-mail about Weill "personally embarrassing," and said it was designed to "make an impression on a colleague and friend."
Grubman, the third-ranked telecommunications analyst in a 2001 survey of fund managers by Institutional Investor magazine and No. 1 in 2000, worked at Salomon Brothers, which later became Salomon Smith Barney, from 1994 until last August and frequently moved the shares of companies he wrote about. WorldCom shares surged 42 percent over two days in January 2001 after Grubman described the stock as "dirt cheap" in a note to investors.
In July of this year, Grubman testified to Congress that he had attended three WorldCom board meetings during the past 12 years at which he learned material, nonpublic information, which he said he was prohibited from communicating to his clients.