Grubman Loses Face -- Again

Former Citigroup(C) telecom analyst Jack Grubman is being forced to eat his own words in the latest flap over the firm's business practices.

Grubman on Wednesday repudiated the contents of a two-year-old email message in which he made some potentially embarrassing allegations about Citigroup's Chairman and Chief Executive Sanford Weill.

As a result, Grubman, who long ago lost credibility as a stock picker, suddenly lost face as a potential witness in the regulatory investigations of Citigroup's Salomon Smith Barney investment banking division.

The news left defense lawyers shaking their heads, with some saying that Grubman's about-face is a sign that the former star analyst is neither cooperating with regulators nor providing them with any significant damaging information. "It sounds like Grubman hasn't been much help to them," said a lawyer who asked not to be named.

Another defense lawyer familiar with the probe said, "It's fair to say if he were to be the star witness against somebody, [the lawyer] for the defendant would have a field day with him."

The Email

The latest controversy surrounding Grubman stems from an email he sent in January 2001 to an unidentified money manager. In the email, he claimed that Weill asked him to upgrade his rating on shares of AT&T in order to curry favor with AT&T Chief Executive Michael Armstrong, who was a member of Citigroup's board. Weill apparently wanted Armstrong's support for his ultimately successful bid to oust then Citigroup Chairman John Reed from the bank's boardroom.

The email was discovered by investigators working for New York Attorney General Eliot Spitzer, who has been digging into allegations that the thirst for investment-banking deals at Citigroup colored the research reports of high-profile analysts like Grubman. Soon after news of the email broke in the media, Grubman released a statement in which he acknowledged sending the email but said he "invented" the story about Weill in order to bolster his "professional importance." Grubman said his research on AT&T was "done on the merits" and wasn't intended to either influence Armstrong's vote in the power struggle or to help Salomon win an investment banking deal.