February 10, 2003

Weill '55 Implicated In Nursery School Admissions Scandal

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According to a report published by the New York Times and CBS News, Citigroup CEO and chairman Sanford Weill ’55 is involved in an alleged corporate scandal that shows just how far parents will go to give their kids a head start.

A Jan. 2001 e-mail sent by Citigroup’s former top analyst Jack Grubman to a colleague stated that Grubman had raised his rating of AT&T’s stock in exchange for Weill’s help in securing his twins’ admission to the exclusive Manhattan nursery school, the 92nd Street Y.

Weill has denied the allegations, while Grubman, who resigned last August from his post at Salomon Smith Barney (Citigroup’s investment banking branch), stated that he had lied in the e-mail to impress his colleague.

The incident allegedly took place in 1999, directly before the bursting of the dot-com bubble. Grubman, seeking to gain an advantage for his twin daughters in the increasingly competitive market of exclusive Manhattan nursery schools, asked Weill for his help. Weill allegedly asked Grubman, one of the most influential stock analysts on Wall Street, to raise his rating of potential Citigroup client AT&T to “Buy.” Citigroup then made a $1 million donation to the 92nd Street Y.

Weill denied to CBS News that he attempted to influence Grubman’s rating of AT&T to gain the support of AT&T CEO C. Michael Armstrong, who also sits on the Citigroup Board. He admitted he had intervened on Grubman’s behalf to the school, but only to help a valued employee.

“I tried to help Mr. Grubman because he was an important employee who had asked for my help,” Weill said to CBS. “Although my effort to help an employee’s children is what led me to call the 92nd Street Y, the Y is a superb institution and our support is consistent with Citigroup’s philanthropic efforts.”

Besides being under investigation by the district attorney, the incident has sparked a rash of class-action lawsuits, and has been called the most glaring example of malpractice in the banking industry during the late 90s technology boom. The subsequent collapse of that sector of the market has left many accusations that analysts such as Grubman touted weak stocks to increase their own firms’ investment banking business.

Citigroup is currently in the process of separating its research and investment banking operations as required by new federal and state regulations.

In his e-mail, Grubman alleged that Weill was attempting to win Armstrong’s favor in order to oust a boardroom rival. He has since retracted his statements, saying that he was only attempting to impress his colleagues with the depth of his influence. He reaffirms that his rating of AT&T was based solely on the merit of the stock. The boardroom rival in question, former Citigroup co-chair John Reed, has since resigned.

The deception was not unprecedented, as Grubman had previously acknowledged to Business Week magazine in 2000 that he once claimed to have graduated from MIT rather than his real alma mater, Boston University.

Weill made headlines last year at Cornell with the $100 million dollar donation he and his wife Joan made to the Weill Medical College, which was subsequently named after them.

Archived article by Gautham Nagesh