Salomon Smith Barney and its former telecommunications analyst, Jack Grubman are closing in on an agreement with securities regulators to settle an investigation into allegedly misleading investment advice they supplied to investors.
Mr Grubman could reach an agreement with the National Association of Securities Dealers, the securities industry’s self-regulatory group, on Monday, according to people familiar with the negotiations.
A deal between Salomon and a group of civil securities regulators, including the NASD, the Securities and Exchange Commission and the New York Stock Exchange, could follow later in the week, these people said. They cautioned, however, that talks could break down at any time.
A settlement would provide the first sign of progress in the bank’s effort to put a raft of legal and regulatory problems behind it.
Salomon, the investment banking and brokerage unit of Citigroup, is at the centre of a series of legal probes into whether analysts recommended stocks to investors to help drum up investment banking business.
Congress and regulatory authorities are also examining whether the bank awarded allocations of initial public offerings to top executives in exchange for their companies’ investment banking business.
Sandy Weill, Citigroup chairman and chief executive, expressed a desire to clean up Salomon’s regulatory problems when he ousted its head, Michael Carpenter, earlier this month and replaced him with Chuck Prince, a long-time aide and company lawyer.
The current settlement talks are centred on Winstar, a telecoms company and Salomon banking client that Mr Grubman recommended to investors even as it careered towards bankruptcy.
The penalties would possibly include a fine for Mr Grubman and Salomon. The former analyst could also face suspension from the securities industry.
Securities lawyers have noted that the three-way negotiation could become complicated depending on how much responsibility Mr Grubman is willing to assume for any misconduct and how much he lays at the feet of his former employer.
“Grubman is in the driver’s seat,” said Bill Singer, a former NASD lawyer now in private practice. “He may be able to cut the best deal for himself in exchange for co-operating against his old firm.”
There is also the risk to Salomon that a settlement could provide more ammunition to aggrieved investors who have filed civil lawsuits against the bank.
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