A Tangled Web Woven

Did 1-time star stock analystJack Grubman trade a buy ratingon AT&T for help from his boss,Citigroup CEO Sandy Weill, to gethis kids into an exclusive New YorkCity nursery school? And did Weilluse Grubman's rating to win AT&Tbusiness, as well as an executiveofficeshootout with a colleague?No way, say Grubman and Weill,but the timeline has raised eyebrowson Wall Street and in theoffice of New York State AttorneyGeneral Eliot Spitzer.

The first step in the saga wasWeill requesting that Grubman"take a fresh look" at AT&T. (Weillserves on the AT&T board of directors;Michael Armstrong, CEO ofAT&T, is on the Citigroup board.)Weill's request was followed byGrubman's plea for help in gettinghis twin daughters into the 92ndStreet Y, an elite nursery school(annual tuition, $13,000). Weillreportedly made a call on Grubman'sbehalf and pledged a $1 milliondonation from Citigroup tothe 92nd Street Y; Grubman subsequentlyupgraded AT&T from neutralto a buy rating. A few monthslater, Citigroup's Salomon SmithBarney division was chosen tounderwrite a new stock issue forAT&T, and 2 weeks after thatannouncement, Weill, with thesupport of board member Armstrong,won an executive-suitepower struggle with Citigroup co-CEO John Reed, who resigned.

In the summer of that year, theCitigroup donations started flowingto the nursery school, whichenrolled the Grubman twins. Byautumn, Grubman had downgradedAT&T back to neutral. Theremay not be any cause and effecthere, as Grubman and Weill claim,but to many investors, it surelooks as though something sneakywas going on.