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Weill Part of Spitzer Probe

Inquiry Reportedly Eyes Citigroup CEO's Role In Grubman Upgrade of AT&T Before Lucrative Deal

Aug 23, 2002 | CNN/Money

New York State Attorney General Eliot Spitzer's probe of analysts' practices at investment bank Salomon Smith Barney is looking at whether the firm upgraded its rating on AT&T Corp. to help win a lucrative underwriting contract from the telecom in 2000.

The Spitzer investigation is looking at the role of Sanford Weill, CEO of Salomon parent company Citigroup and a board member of AT&T, in the upgrade, according to a published report Friday.

AT&T confirmed to CNNfn Friday it had received a request for documents from Spitzer's office on its selection of an investment bank to handle the initial public offering of its wireless unit in April 2000. Salomon, a unit of Citigroup, was one of three investment banks to serve as an underwriter on that lucrative IPO, netting the firm a reported $44.8 million.

The Wall Street Journal reported that Spitzer is probing whether Weill played a role in the upgraded rating of AT&T by controversial former analyst Jack Grubman. Grubman was an AT&T critic at the time but he upgraded his recommendation to a "buy" just before the AT&T Wireless IPO contract was awarded. He downgraded the company again about seven months after the IPO.

An AT&T spokesman said the company is cooperating with the investigation and denied there was anything improper about Salomon's selection as one of the underwriters on the wireless IPO.

"AT&T has an extensive relationship with Salomon Smith Barney and in fact has had them in key prominent offerings, including debt and equity, independent of Grubman's or any other analyst's assessment," said the spokesman. "AT&T has a rigorous process for selecting underwriters. Salomon Smith Barney has an extensive distribution channel and its retail relationships are certainly critical for AT&T to consider when engaging in any major offering."

A Citigroup representative also denied that there was any pressure put on Grubman by Weill.

"Mr. Weill never told any analyst what to write and any suggestion that he did is outrageous and untrue," the spokesperson told CNNfn. "Of course we will cooperate with the investigation." Spitzer's office had no comment for CNNfn.

The paper said the firm had not been able to land some previous AT&T business, including its spinoff of Lucent Technologies in 1996, when Grubman had a more bearish rating on the stock. Weill joined the AT&T board in 1998.

The paper said that while Weill has not been subpoenaed as part of Spitzer's probe, his inclusion in the investigation is a sign that Spitzer is broadening his look at possible conflicts of interest by Wall Street firms. Spitzer reached a $100 million settlement with Salomon competitor Merrill Lynch & Co. earlier this year that included agreement by the firm to change its research analysts' practices.

And the Journal quoted unnamed people familiar with the matter saying that AT&T CEO Michael Armstrong had urged Weill to temper Grubman's criticism of the telecom, and that Weill prodded Grubman to reconsider his rating.

A lawyer for Grubman, who resigned from Salomon under fire last week, did not return calls seeking comment, the paper said. But the paper said there were questions at the time of the IPO about his change of heart on AT&T, and he stated at the time, "Anyone who knows me knows that I call them as I see them."

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