Weill, Grubman must Face Suit

By Holly M. Sanders
New York Post
December 4, 2004

Citigroup Chairman Sanford Weill and former star telecom analyst Jack Grubman are headed for court.

A federal judge in Manhattan will allow a lawsuit to proceed that claims Citigroup's brokerage unit, Salomon Smith Barney, Weill and Grubman misled investors by issuing false and overly optimistic research reports on AT&T Corp.

The suit alleges Weill urged Grubman to take a "fresh look" at his lukewarm stock rating on phone giant AT&T - which was about to spin out its wireless business - in order to win lucrative investment banking business.

Grubman raised his rating on AT&T from "neutral" to "buy" in late 1999. The suit claims the timing was more than suspect, when in January 2000, Salomon won a coveted spot as an underwriter for the stock offering of AT&T Wireless.

In a bizarre twist, the lawsuit claims that Grubman changed his rating so that Weill would help get the analyst's twin into an elite Manhattan nursery school.

The suit also alleges Grubman was doing Weill a favor by helping him curry favor with AT&T CEO Michael Armstrong, who would help vote Weill's nemesis, former Citi CEO John Reed, off the board.

In an email to a colleague, Grubman bragged that he used Weill to get his twins into the 92nd St. Y pre-school.

"Sandy needed Armstrong's vote on our board to nuke Reed in a showdown. Once the coast was clear, I went back to my normal self," according to an e-mail cited in the suit.

In May 2000, Grubman issued a more bearish target price on AT&T, and then downgraded the stock in October of that year, according to the suit.

In an opinion issued yesterday, U.S. District Judge Gerard E. Lynch said the investors bringing the suit had "painted a disturbing picture" of Salomon.

Lynch wrote that the "allegation, if true, make out a strong case that conflicts of interest there may have provided a motive for analysts to issue research reports that were more positive than their truly held opinions."

Citigroup declined to comment.

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