Citigroup Inc. Chief Executive Officer Sanford Weill, who told former stock analyst Jack Grubman to reconsider his rating of banking client AT&T Corp., was barred from talking to the bank’s researchers without lawyers present, under the terms of a settlement with regulators.
Citigroup, the world’s largest financial services company, agreed to pay $400 million as its part of the $1.4 billion accord to settle claims Wall Street research was compromised by the effort to win banking business. The firms also agreed to change the way they supervise and compensate analysts.
The penalty paid by Citigroup was the largest among the 10 banks settling conflict-of-interest claims. Authorities also imposed the stiffest restrictions on the company. Sallie Krawcheck, chief executive of the Smith Barney brokerage and research unit, was required to report to three board committees.
“Because of Salomon Smith Barney’s and Citigroup’s record of violations, those companies face additional requirements that go well beyond the global settlement,” said New York State Attorney General Eliot Spitzer. “These provisions are necessary and appropriate.”
In a statement, Weill said, “Certain of our activities did not reflect the way we believe business should be done. That should never have been the case, and I am sorry for that.”
Weill, 70, told Grubman to “take a fresh look” at AT&T in 1999 when Citigroup was seeking a $63 million assignment to help arrange an initial public share offering of the phone company’s wireless division. Grubman, who had been critical of AT&T for four years, met on Aug. 5 1999 with Weill, then an AT&T board member, and AT&T Chairman Michael Armstrong, who in turn was on the Citigroup board, according to a letter the analyst wrote the phone company chief.
“As I indicated to you at our meeting, I would welcome the role of being a ‘kitchen cabinet’ member to you,” Grubman wrote Armstrong. “Once I’m on board, there will be no better supporter than I. In fact, I look forward to verbal sparring with critics of your strategy once we get our work complete.”
Weill has since quit the AT&T board. Armstrong remains a Citigroup director.
Around the same time, Grubman sought Weill’s assistance at getting his children into a Manhattan nursery school and Weill approved a $1 million Citigroup donation to the school’s parent organization.
Grubman raised his recommendation in November 1999 and then lowered it the next year after Citigroup underwrote the share sale. Grubman resigned under pressure last Aug. 15 as investigators probed allegations he misled investors by issuing favorable stock ratings to win investment banking work.
In Monday’s settlement, he agreed to pay a $15 million fine and be barred from working in the securities industry for life.
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