Salomon Smith Barney on Monday turned over to a congressional committee copies of e-mail and correspondence between the firm’s former telecom analyst, Jack Grubman, and executives at Global Crossing.
The House Financial Services Committee has initiated a broad investigation into conflicts of interest on Wall Street and has requested similar documents from Goldman Sachs and Credit Suisse First Boston. The committee also wants to know if the firms doled out shares in hot new Internet companies as a way to attract investment-banking business.
During the Internet boom, stock in initial public offerings often shot through the roof in the first days of trading, allowing early shareholders to turn a quick profit.
Salomon, a division of Citigroup, has already handed over its records about IPO shares the firm sold to executives and directors at WorldCom.
WorldCom and Global Crossing, which are operating under bankruptcy-court protection, are being investigated by the Justice Department ( news – web sites).
Salomon is expected to produce the documents pertaining to the IPO shares received by Global Crossing executives but only after the committee issues a subpoena. Salomon has maintained that it can’t hand over the information without a subpoena because of client confidentiality laws.
Nevertheless, the congressional investigation still presents a formidable challenge for Charles Prince, 52, who was named to head Salomon on Sunday. Prince replaces Michael Carpenter, who will oversee Citigroup’s investment portfolio.
With all of Salomon’s regulatory and legal issues — the firm also is being sued for some of its dealings with fallen energy giant Enron — an executive like Prince makes sense, industry analysts say. Prince was Citigroup’s general counsel and most recently its chief operating officer.
Robert Rubin, former Treasury secretary and the current chairman of the executive committee for Citigroup’s board, will also be more involved in running Salomon.
In announcing the management shakeup, Citigroup Chairman Sandy Weill said, ”As a result of recent events, we have recognized that we need to re-examine our business practices and make appropriate changes. There are certain industry practices that we should all be concerned about, and although we have found nothing illegal, looking back, we can see that certain of our activities do not reflect the way we believe business should be done. That should never be the case, and I am sorry for that.”
Grubman quit Salomon last month, saying he couldn’t work in the ”current climate of criticism.”