Citigroup's

(C) - Get Report

cozy, closely scrutinized relationship with former WorldCom Chairman Bernard J. Ebbers was closer than previously known: The financial-services giant is an equity owner in Joshua Timberlands, an Ebbers-controlled private company.

A January 2001 document -- uncovered by the counsel to H. Carl McCall, the court-appointed lead plaintiff in a class-action suit against WorldCom -- shows Citigroup unit Travelers Insurance as a 2.5% owner in Joshua Timberlands, the

New York Times

reported Sunday. The revelation comes one month after it was learned Citigroup loaned Joshua Timberlands hundreds of millions of dollars.

Mr. Ebbers set up Joshua Timberlands in 1999 to buy 460,000 acres of timber property for $400 million -- units of Travelers lent him $134 million for the acquisitions. Due to the high-risk loan, Travelers received the stake, which gave it limited voting rights. When the loan was disclosed in Mr. McCall's complaint last month, Citigroup didn't mention an equity stake and didn't disclose the terms of the loan to Ebbers.

"This information yet again shows the relationship between Citigroup and Mr. Ebbers went deeper than the investing public was led to believe and it is outrageous that these facts were not clearly disclosed to the investing public," McCall told the

Times

.

The suit filed by McCall, a candidate for New York's governor, implies that analysts at Citigroup's Salomon Smith Barney unit could have been compromised in their analysis of WorldCom for fear of endangering Ebbers' ability to repay the loan. McCall is trustee of the New York State Common Retirement Fund, which is lead plaintiff in a class-action securities suit related to the collapse in WorldCom's stock.

Eight months after Travelers made the loan, WorldCom named Salomon to be lead underwriter of $5 billion of its debt. Ebbers made an $11 million windfall on IPO shares he got from Citi's investment banking unit and its predecessors. Salomon analyst Jack Grubman had a buy rating on WorldCom until three months before the company declared bankruptcy amid disclosure of a colossal financial fraud.

A Citigroup spokeswoman told the

Times

, "A small equity interest is a perfectly routine consideration for arranging a loan of this sort." She also said the equity interest was not substantive enough to require disclosure.