Investigators looking at conflicts of interest by Salomon Smith Barney analysts are looking at whether the firm’s former telecom analyst Jack Grubman upgraded his rating on AT&T Corp. shares in return for help getting his twins into an exclusive New York nursery school.
An e-mail by Grubman turned over to the New York Attorney General investigators suggests that he received help from Sanford Weill, chairman and CEO of Salomon parent Citigroup, in getting his children into the nursery school run by the 92nd Street Y, and that Citigroup had made a $1 million donation to the organization. Weill was also a member of the AT&T board of directors, and subsequent to Grubman’s upgrade of AT&T stock, Salomon was named one of the underwriters of the lucrative initial public offering of the company’s wireless unit’s track stock.
The claim about Weill’s help with the nursery school admission is part of the same e-mail in which Grubman had claimed that Weill had wanted the upgrade in order to gain the support of AT&T Chairman Michael Armstrong, a member of the Citigroup board, in a struggle to oust Citigroup co-CEO John Reed, who left the firm in early 2000.
Grubman has issued two statements in which he admitted to writing the e-mail but said the claims in the e-mail were a fabrication he invented to impress the friend he was writing to and were baseless.
“The continued disclosure of these personal e-mails which I obviously expected to stay private is insensitive to my family, offensive to the 92nd Street Y and unfair to Sandy Weill and Mike Armstrong,” Grubman stated.
Weill issued a statement to Citigroup senior management Wednesday saying it was “sheer nonsense” to suggest that he made Grubman raise his rating due to any kind of board room power struggle or that there was anything improper about his intervening to help Grubman’s children get into the nursery school or the corporation’s donation to the Y.
“I tried to help Mr. Grubman because he was an important employee who had asked for my help. It is therefore deeply upsetting that my intentions were so grossly distorted in this e-mail,” Weill wrote.
But even the acknowledgement he helped Grubman could hurt Weill. The Washington Post reported Thursday that Weill, in sworn statements to investigators of the National Association of Securities Dealers, said that he barely knew Grubman and had very little interaction with him.
Weill’s statement to management also acknowledges that he did ask Grubman to reconsider his rating of AT&T stock, but again denied there was anything improper about that.
“I did suggest to Mr. Grubman, in late 1998 or early 1999, that he take a fresh look at AT&T in light of the dramatic transformation of the company and the industry,” he said. “But I always believed that Mr. Grubman would conduct his own research and reach independent conclusions that were entirely his own.”
Grubman has also insisted that his upgrade was based on his assessment of the company, not on an attempt to win investment banking business for Solomon or any other motivation.