State investigators are looking into whether a top analyst for Citigroup Inc. upgraded his rating of AT&T’s stock to help land the bank a role advising on a $10.6 billion deal for the telecommunication giant, a source familiar with the matter said.
AT&T spokeswoman Eileen Connolly confirmed Friday that the company received a subpoena from state Attorney General Eliot Spitzer’s office, but declined to elaborate.
The source, who spoke on condition of anonymity, said the subpoena focuses on whether telecommunications analyst Jack Grubman changed his rating on AT&T to help Citigroup’s Salomon Smith Barney investment banking division win the role underwriting AT&T’s April 2000 deal to help set up an AT&T tracking stock to finance the company’s wireless division.
Grubman, an influential Wall Street stock analyst who touted shares of troubled companies like WorldCom and Global Crossing, resigned earlier this month amid mounting conflict-of-interest allegations.
Spitzer spokesman Darren Dopp said an investigation is under way, but he declined further comment. Securities regulators are also looking into allegations against Grubman.
The Wall Street Journal reported Friday that Spitzer is also investigating what role Citigroup chief executive Sanford Weill may have played. The Journal cited unidentified people familiar with the matter.
Salomon Smith Barney was selected as a lead underwriter for the deal after Grubman upgraded his rating on AT&T shares to “buy,” the Journal said. Grubman had been bearish on AT&T stock for years.
The Journal previously reported that Weill, an AT&T board member, encouraged Grubman to give AT&T a fresh hearing before Salomon landed the underwriting role.
Salomon spokeswoman Susan Thomson denied that Weill pressured Grubman to change his AT&T stock rating.
“I can tell you Mr. Weill never told any analyst what to write and any suggestion he did is outrageous and untrue,” she said.
Grubman’s attorney, Lee Richards III, didn’t immediately respond to a request for comment Friday. In 2000, Grubman told The Wall Street Journal: “Anyone who knows me knows that I call them as I see them.”
Dopp said Grubman’s recent resignation wouldn’t affect Spitzer’s investigation into Wall Street analysts that began with Merrill Lynch & Co., the nation’s largest brokerage.
In May, Merrill Lynch agreed to pay a $100 million penalty and adopt reforms that would separate analysts from the investment banking arm. Several brokerages have since agreed to reforms, including Salomon Smith Barney, the investment banking division of Citigroup.