Updated from 2:25 p.m. EDT

Citigroup ( C) CEO Sanford Weill has spent an unusually scandal-free half-century on Wall Street, only to see his reputation repeatedly tarnished over the last 12 months. His latest troubles could be his most serious.

Weill, who is known for being a demanding leader, is currently the target of an investigation by New York state Attorney General Eliot Spitzer, according to The Wall Street Journal. Spitzer is looking into whether Weill pushed telecom analyst Jack Grubman to upgrade shares of AT&T ( T) in April 2000 in order to win a lucrative investment banking deal.

"Sandy Weill is very respected on the Street, so I think there's no doubt it will clearly hurt his reputation," said John Barrett, a financial analyst at Gannett, Welsh & Kotler. "This is the first time that I've seen anything like this come out against him specifically."

A Citigroup spokeswoman denied the allegations. "Mr. Weill never told any analyst what to write and any suggestion that he did is outrageous and untrue," Christina Pretto said.

Weill You Were Out

It's not the first time this year that his leadership has been questioned. Weill has come under criticism from all directions as Citigroup's shares have plunged 26% to $34.07.

Although most of the major investment banks are under scrutiny for alleged conflicts of interest between their research and banking businesses, Citigroup's image has been harmed more than others recently because of its analysts' close ties to WorldCom, which collapsed earlier in the year amid a $7 million accounting scandal.

Citi now faces shareholder lawsuits as a result of Grubman's persistent bullishness on the stock, and bondholders are suing the firm for allegedly failing to do proper due diligence when it underwrote $11 billion of WorldCom debt last year along with J.P. Morgan ( JPM).

Meanwhile, Citigroup also has been pressured by Congress for its role in helping now bankrupt energy trader Enron hide debt from investors. The financial behemoth helped Enron structure the so-called special purpose entities that kept $1 billion of debt off its balance sheet.

Fed Investigation

And the problems don't stop there. Citi's subprime lending practices are currently being probed by the Federal Reserve, and regulators could force the company to write down large amounts of debt.

"In a sense, he is the captain of the ship, so he is responsible for things that happen under his leadership," said Ken Worthington, an analyst at CIBC World Markets.

Still, most analysts don't believe Weill's position as CEO is in jeopardy. "He's known for being a very talented leader, and I don't think his personal ethics have ever been questioned," Worthington added.

Barrett takes a more pragmatic view of the situation, saying it probably would be hard to prove if Weill actually had done anything illegal. "I don't think this will be his downfall," Barrett said.

Although the current problems are the most serious that Weill has faced since taking the Citigroup reins in 1998 following its merger with Travelers, Weill has suffered other embarrassments that failed to have a lasting impact.

Convergence Play

Consider the firm's involvement in Long-Term Capital Management. Citigroup poured hundreds of millions of dollars into the hedge fund, which came close to collapsing in 1998 after various interest rate bets went awry. The mistake was all the more glaring given Weill's principled decision to simultaneously shut down the Salomon bond desk that had launched LTCM architect John Meriwether.

Weill later acknowledged that he wasn't aware of the risk involved, but he managed to escape the fiasco with minimal damage to his reputation.

And despite the concerns, Barrett said he still likes Citigroup as an investment, noting that any legal costs the company may be liable for are a mere drop in the bucket for a company of Citigroup's size. "You're talking about a company that will do $16 billion to $17 billion in earnings this year," he said.

Still, others aren't as sanguine. Brock Vandervliet, an analyst at Lehman Brothers, is cautious on the financial sector in general because of a variety of fundamental concerns and because all the bad news regarding potential liability at the major banks may not have been released.

"I don't believe the legal risks to the industry, and primarily to JPM and Citigroup, are completely known," he said. "I think you'll see a lot more headline items like this particularly in September as Congress gets back in action after their summer recess."

David Hendler, an analyst at CreditSights, said one of his big concerns is that the recent problems will make it hard for Weill, known as one of the best dealmakers on Wall Street, to go on the acquisition trail.

"Citigroup has been losing some of its premiere status over the last few months," he said. "If you have a top executive bogged down by these types of allegations it distracts the top management's time and focus."