Wall Street Star's Sleazy School Scam

APRIL 29--Jack Grubman, the former Wall Street telecom analyst, has been permanently barred from the securities industry and fined $15 million for unethical and underhanded behavior while employed at Salomon Smith Barney. Included in Jack's sleazy portfolio was how he famously rigged a rating on AT&T's stock to help grease his children's admission to a tony Manhattan pre-school. The below documents, which surfaced during the recent government probe of the industry, show how Grubman reached out in late-1999 to Citigroup boss Sanford (Sandy) Weill for help in getting his two-year-old twins into the kiddie program at the 92nd Street Y. At the time, Citigroup--of which SSB was a division--was essentially on the outs with AT&T because Grubman had given the telecom giant's stock a weak rating. This was something that Weill wanted to change for a couple of reasons: a rating upgrade might mean more underwriting business for Citigroup, and Weill himself was a member of AT&T's board of directors. After agreeing to Weill's request to take a "fresh look" at AT&T, Grubman boosted the telecom stock to a "buy" rating. This crucial upgrade benefited everyone: AT&T's stock gained an appreciable sheen. SSB was selected as a lead underwriter on the initial public offering of an AT&T subsidiary. And Grubman's kids got into the school of daddy's choice (after Weill, of course, had the Citigroup Foundation drop a $1 million donation on the Y). In May 2000, not long after the IPO and his children's school admission, Grubman would again downgrade AT&T due to disappointing earnings. By January 2001, Grubman was writing an e-mail to a friend acknowledging that Wall Street thought he had upgraded AT&T (which he referred to as "T") in return for the lead underwriter business. "Nope. I used Sandy to get my kids in 92nd St Y pre-school (which is harder than Harvard)." He also bragged about how he and Weill duped AT&T CEO Michael Armstrong, playing him "like a fiddle." Beautiful. (5 pages)