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Grubman Loses Face -- Again

The disgraced Citigroup analyst now has to repudiate an embarrassing old email about the firm's chairman.



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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.

The Grubman repudiation echoed an equally strong statement released earlier Wednesday morning by Citigroup and Weill. In the statement, Weill expressed "outrage" that the email had been leaked to the press, even though Grubman previously provided regulators with sworn testimony that contents of the messages were "fabrications." Weill did say that he asked Grubman to "take a fresh look" at AT&T's stock, but said he expected Grubman to come to his own conclusions.

Wall Street internal emails have played a critical role in the investigations conducted by Spitzer and other securities regulators into some of the unsavory business practices at the nation's biggest brokerages. Earlier this year, Spitzer used a series of damaging email messages from former

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analyst Henry Blodget to pressure the nation's biggest brokerage into paying a $100 million fine to resolve a conflict-of-interest investigation.

But lawyers say email messages can be misleading. And while the release of Wall Street emails to the media has made for some splashy headlines, the emails can be taken out of context. "Without the context you cannot discern the true meaning of an email," said Robert Morvillo, a New York criminal defense lawyer. It's hard to tell "whether it is serious or facetious and for what purpose it was intended. One shouldn't jump to conclusions about the substance of an email without more information."

Similarly, Benjamin Brafman, another criminal-defense lawyer, said that in some high-profile criminal cases, investigators may turn up thousands of emails. At first glance, he said, any single email can look damaging, but it can sometimes "be completely neutralized by other emails that either precede or follow it."

Stock Takes a Hit

Unfortunately for Citigroup, Grubman's repudiation was doing little to neutralize the impact of the news. Shares of the nation's largest financial-services firm in midday trading were down 84 cents at $35.55, even though most other bank stocks were trading higher.

Some Wall Street observers said the email, despite Grubman's repudiation, served as a reminder to investors of just how damaging these investigations have been to Citigroup's reputation this year. The stock is down 24% this year, even though the company produced relatively solid earnings throughout the economic downturn.

Indeed, lawyers said the email may have been leaked by regulators to put added pressure on Weill and Citigroup, as negotiations aimed at forging a global settlement of Wall Street's many conflicts of interest drag on.

Citigroup is one of 10 big securities firms now involved in those talks with representatives from Spitzer's office, other state regulatory agencies and the

Securities and Exchange Commission

. The negotiations are aimed at coming up with a formula for providing ordinary investors with greater access to independent stock research that is produced by firms that don't do any investment banking business.

Citigroup on Wednesday reported in a company filing that the bank and Grubman have been named as defendants in 62 potential class-action lawsuits. Grubman also is a defendant in nearly two dozen arbitrations brought by Citi brokerage customers.

Grubman, who in one year took home a $20 million paycheck from Citigroup, left the bank in August with a $30 million severance package, after becoming the poster boy for Wall Street conflicts of interest. It's believed that Citi, as part of that severance deal, is still paying Grubman's legal fees. Grubman's lawyer, Lee Richards, couldn't be reached for comment.

In recent days, Grubman has provided testimony to investigators from Spitzer's office. Spitzer's office also has been questioning other potential witnesses. A spokesman for Spitzer declined to comment.