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Citigroup Facing Subpoena in IPO Probe

The bank has refused to say if it spun IPO shares to favored clients. Soon, it may have to talk.

The chairman of the House Financial Services Committee, frustrated by


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unwillingness to turn over information about any


executives who may have gotten shares in initial public offerings, will try to pry the information out with a subpoena.

Rep. Michael Oxley (R., Ohio) said Friday that a subpoena is necessary because Citigroup provided insufficient information about what, if any, special treatment its Salmon Smith Barney investing banking division may have given WorldCom executives. Salomon had been one of the now-bankrupt telecom's principal investment bankers.

The issue of whether Salomon may have doled out shares in some bull-market IPOs to WorldCom executives came up during a committee hearing last month into the accounting fraud at the big long-distance carrier. Citigroup maintains it would be an invasion of federal privacy law for it to provide that information without a subpoena.

Citigroup spokeswoman Leah Johnson said, "We will continue to cooperate with the committee."

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Legislators at the hearing questioned Jack Grubman, Salomon's one-time star telecom analyst and a longtime WorldCom bull, about the IPO issue. But Grubman, now facing numerous investor lawsuits and arbitrations over his overly bullish WorldCom stock calls, would only say that he couldn't recall whether that had happened.

While unsavory, it's not illegal for investment banks to offer corporate clients a chance to invest in IPOs. However, the National Association of Securities Dealers, in light of the furor stoked by the WorldCom mess, is moving to prohibit investment banks from continuing this practice in the future.

Citigroup did provide the House Committee with more details about Grubman and his glittering compensation package, which in one year totaled nearly $20 million. The details about Grubman's work for Salomon were spelled out in an Aug. 7 letter from Citigroup attorney Jane Sherburne to the committee. A copy of the letter was posted Friday on the

committee's Web site.

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Citigroup says Grubman's lucrative pay package stems from an attempt by

Goldman Sachs

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to steal him away in 1998. To keep Grubman, Citigroup entered into a five-year deal with the analyst that runs through December 2003 and includes a minimum salary, specified bonuses, stock options and a "loan that will be forgiven should Mr. Grubman fulfill the terms of his agreement." The letter doesn't provide any dollar amount for the loan.

The bank also says it's not "aware of any circumstance" in which Grubman promised a company favorable stock research in exchange for hiring Salomon as its investment banker.


The letter also indicates that Grubman's value to Salomon has fallen along with the value of the telecom stocks he's long touted, such as WorldCom,



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"Mr. Grubman's bonus declined slightly in 2000 and, while still substantial, fell dramatically in 2001 -- by around 80%," says Sherbune in the letter. "The primary reason for this decline was Mr. Grubman's poor performance in picking stocks."

Sherburne's letter also indicates that Grubman, on at least a dozen occasions, attended board meetings of companies ranging from WorldCom to Global Crossing to Qwest. And it acknowledges that other of its analysts have "from time to time, attended board meetings of companies they analyzed."

Along with the letter, Citigroup claims to have delivered two boxes of records and information requested by the committee. Some of these documents include copies of internal emails that have been also turned over to federal regulators and the New York state attorney general's Office, which are conducting their own investigations into Grubman and Salomon's investment banking work.

But Citigroup says some information that the committee is seeking was destroyed in the Sept. 11 terror attack on the World Trade Center. Salomon had offices in 7 World Trade Center, one of the buildings that collapsed in the aftermath of the attack. The bank says that back-up tapes of corporate emails from September 1998 through December 2000 were stored at the building and destroyed in the attack.