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The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.

Citigroup Culture

What jumps off the page in these documents is the Wall Street firms' disregard for the individual investor in pursuit of personal benefit. In Wall Street Hierarchy, Short Shrift To Little Guy The New York Times April 29, 2003

This page examines the characters of people involved in the Citigroup saga and in doing so looks at the culture of Citigroup, the New York Stock Exchange and the lobbying and political system


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Introduction and Theoretical Perspective

After examining corporate health care I have suggested that a competitive marketplace in an area where there is a strong conflict of interest selects specifically for people who can be described negatively as closed minded, one eyed or in positive corporate jargon as focussed. We end up with leaders who perceive only what they wants to perceive and a culture which ignores evidence, argument and reason in order to meet accepted measures of performance. In the marketplace this measure is profit. These are the people least suited to work in areas where there are conflicts of interest.

We all have the potential to behave like this, particularly when under pressure to perform but some are more likely to do so.

Similar conflicts of interest to those in health care have been created in large financial institutions by the progressive liberalisaton and deregulation of this marketplace. At the same time competitive pressures have been ramped up driving the process towards unacceptable behaviour.

Not surprisingly we see the same things happeningas in health care. The fiduciary duty to make money is in conflict with the social responsibility to deal fairly and honestly with investors. Market analysts were professional people with a professional obligation to serve the interests of the investors they advised. They were under strong pressure to put the interests of the company ahead of their professional duty to the community. Those who did so prospered.

Grubman was the Citigroup analyst blamed for creating most of the DotCom bubble by publishing deceptive reports.

For years, only the bottom line mattered for Citigroup. The financial conglomerate formed by the 1998 merger of Travelers and Citicorp made mountains of money - Dollars 14.6bn (Pounds 10bn) last year - and its shares consistently outperformed the competition. Diversity could come back to haunt Citigroup: The US financial group's breadth of business may be a risk Financial Times (London,England) July 1, 2002

Investment bankers pressured Grubman to maintain positive ratings on companies in part to avoid angering the covered companies and causing them to take their investment banking business elsewhere.
Thereafter, the then-head of investment banking for S.S.B. and the head of telecom investment banking called Grubman separately. The head of investment banking told him not to downgrade the stocks because doing so would anger these companies and hurt S.S.B.'s investment banking business. The head of telecom investment banking told him that they should discuss his proposed downgrades because some of the names were more sensitive than others. S.S.B. and Grubman did not downgrade these stocks until months thereafter, continued to advise investors to buy these stocks and, in the weeks and months following, merely lowered the target prices for each of these companies.
(Grubman email) "Another one. I hope we were not wrong in not downgrading. Try to talk to folks to see what they think of these downgrades. Maybe we should have done like I wanted to. Now it's too late".
Later the same day, the same analyst e-mailed Grubman, warning him that an institutional investor thought downgrading XO would: "definitely get the Lame-O award on CNBC and wouldn't help anyone out, it would just call attention to our negligence on not downgrading sooner." . . .
WALL STREET SETTLEMENT; Excerpts From Settlement With Citigroup on Salomon's Recommendations The New York Times April 29, 2003

The people I am describing are people who see only their objective and how to get there. They do not see what they do not want to see and ignore the adverse consequences of their actions. When what they don't see is obviously harmful to others then I have called this successful sociopathy. The people are successful sociopaths and the culture that results is sociopathic.

There are situations where charismatic people who have enormous drive and no doubts can be enormously successful and make major positive contributions to society. If the context does not contain conflicts of interest they can perform very well and become icons. The problems come when they have conflicts of interest and I have argued that these are the worst possible people for health and aged care because of this. The same may well apply to financiers.

These individuals and groups frequently rationalise their conduct to persuade themselves and their supporters that what they are doing is legitimate.. The following extract relates to rationalising the banks complicity in the Enron fraud - turning debt into profit on balance sheets.

When the banks did these deals, they thought Enron would repay the money, and they viewed such transactions as routine and acceptable. It is worth noting that the deals moved things around Enron's balance sheet, not off it, unlike some of Enron's other outrageous maneuvers. Beautifying Balance Sheets Was Routine. Is It Now a Crime? The New York Times July 26, 2002

I have borrowed the term from a paper "Successful Sociopathy" by Robertson et al (MJA 1996). I have suggested a variable continuum from being open minded or reflective at one extreme to being closed minded and ultimately a sociopath and impervious to the suffering of others at the other extreme. Strong pressures to perform in less than socially acceptable ways push us towards closed minded and sociopathic behaviour. While Citigroup staff were aware of the problem with Grubman, management took no action and continued to pay Grubman US $20 million a year based on the business he generated from these reports. Profits were their prime and only consideration. Tenet Healthcare's administration behaved in much the same way when warned that the doctors they were supporting were carrying out unnecessary heart operations.

S.S.B. (Salomom Smith Barney) failed to respond adequately to red flags regarding research.

Members of research management received copies of research reports and call notes when they were issued and routinely reviewed research. Based on this review, complaints from S.S.B. employees and customers, and otherwise, S.S.B. was aware of problems with its research. Indeed . . . members of research management themselves expressed reservations about S.S.B.'s research. Nevertheless, S.S.B. did not take steps to supervise the activities of research analysts adequately.

By early 2001, one of Grubman's supervisors believed that Grubman's ratings were inconsistent with the performance and prospects of the some of the companies he covered.

Moreover, on July 2, 2001, a director who provided research management support sent an e-mail to all research personnel, and others, warning that the models S.S.B. analysts, including Grubman, used to predict future revenues and earnings and generate target prices "must make sense" (emphasis in original) and must be "smell tested." He criticized these models for using "aggressive inputs to arrive at a predetermined valuation/outcome." He concluded by noting that, "Clearly, projected long-term growth rates for many of our companies are too high and would benefit from a thoughtful reappraisal" (emphasis in original). At least one recipient of this e-mail thought he was referring to Grubman ("Amen! You should have cc'd this to Grubman just to make sure.") The author of the e-mail did not disabuse the recipient of this assumption: "No comment on that, at least not in writing." WALL STREET SETTLEMENT; Excerpts From Settlement With Citigroup on Salomon's Recommendations The New York Times April 29, 2003

From the descriptions given in the reports many of those who have been described as corporate acquirers in contrast to corporate builders seem to show closed minded or sociopathic characteristics. Typically they are overconfident and intolerant of the views of others. They believe leaders are "born and not made". They are more likely to pressure their acquisitions for more profit to enable further takeovers. They don't look too hard at how profits are made.

By Jeffrey Sonnenfeld an associate dean at the Yale School of Management and author of "The Hero's Farewell."
Looking at the group of troubled corporate leaders Dennis Kozlowski of Tyco, Ken Lay of Enron, Bernie Ebbers of WorldCom, Gary Winnick of Global Crossing and John Rigas of Adelphia -- it is easy to conclude that flaws in board governance or shady accounting practices are behind their problems. This diagnosis overlooks the commonality in the approach of these corporate executives: All of them are "serial acquirers" of other companies. Proud of his leadership model, Mr. Kozlowski once even offered a "C.E.O. Academy" to help new chief executives follow his path.

These executives saw their jobs first and foremost as expanding corporate holdings, rather than managing their companies to produce better products and services. And because their focus was on immediate financial results, they also tended to see regulators as adversaries and accounting rules as inconvenient barriers to fulfilling their schemes.

It is not surprising that opaque financial reports are a common denominator with these chief executives. Nor is it surprising that those reports withered under scrutiny.
Mesmerizing Wall Street with a dazzling number of deals makes an absence of long-term management vision easy to hide.
These serial acquirers did not build businesses around core competencies but were scavengers for good deals, a strategy that rarely pays off in the long run.
In three years, Tyco acquired 700 companies, creating a pileup of businesses
Yet "Deal-a-Day Dennis," as Mr. Kozlowski was proud to be known, was celebrated for Tyco's 20 percent annual growth rate -- until the last six months, in which the stock has fallen by 81 percent, losing over $80 billion of value.

The flawed strategic logic of these serial acquirers repeats the failures of their predecessors from the 1970's.
Rather than having to demonstrate skill in creating new products, providing better services or motivating employees, these executives are usually judged by investors and analysts only by the swelling size of their empires.
Perhaps because they go unchallenged, executives of this kind tend to believe that leadership is an intrinsic, unearned quality. New survey data from the Yale School of Management and the Gallup Organization found that out of 130 prominent chief executives surveyed, 26 percent believe that "great leaders are born and not made." Who are these leaders anointed with greatness at birth? They are the serial acquirers. Those who believe that great leaders are born have tended to invest less in their existing businesses through expanding factories, developing new products and the like, and were far more likely to prefer growth through acquisitions (some of them are considering making more than 20 acquisitions in the coming year). Those who believed that great leadership is developed through experience were less likely to be serial acquirers.

Executives who build their businesses primarily on acquisitions are perhaps most susceptible to another pitfall: They tend to fly solo. Their near total control in setting strategic plans for their companies makes it difficult for subordinates or the board to critique the direction of the company. And yet, acquirers generally lack a strategic logic that can survive market changes; as a result their empires of hype can be undone very swiftly by market discipline. None of this is really new. The fall of the most recent corporate acquirers provides spectacular reminders of lessons we've seen decade after decade. Expanding Without Managing The New York Times June 12, 2002

It was New York investment bankers who drove the mergers-and-acquisitions deal culture of the 80's and 90's and who most aggressively oversold the myth of synergy that justified it. It was New York investment bankers and their Wall Street brothers who trained a generation of obedient American C.E.O.'s (by means of stock-option-based compensation) to worry more about jacking up their share prices in the short term than about running their companies well for the long haul. City of Schemes The New York Times October 6, 2002

While Citigroup was a prime offender others admired their successful practices. Goldman Sach's for example attempted to entice Grubman away from Smith Barney. Some in the company objected on ethical grounds but the profits he would bring in silenced the dissenters.

Jack B. Grubman, the former star analyst of telecommunications stocks, was such a controversial figure on Wall Street that executives of the Goldman Sachs Group had a heated debate about whether to hire him four years ago, according to internal documents and people close to the firm.

Some Goldman officials, including the head of the firm's research department, argued against hiring Mr. Grubman because he was too involved in the investment-banking side of the business, according to these people and documents. But others countered that Mr. Grubman could bring in as much as $150 million in annual fees to Goldman, more than repaying the $37 million in cash and stock that the firm was considering paying him.
But Goldman's failure to hire him was not for lack of trying, according to Representative Richard H. Baker, Republican of Louisiana.
"Goldman Sachs made a grab for Grubman," Mr. Baker said in his statement. "While Grubman's conflicts of interest are the thing that led to his downfall at Salomon Smith Barney, they were the very same characteristics that made him hot property for Goldman in 1998. Jack Grubman was the poster child of analyst conflicts, and yet Goldman pulled out all the stops to put him on the payroll."
Goldman Wooed A Star Analyst, DocumentsShow The New York Times October 12, 2002

Leaders of health care corporations in the USA have tended to behave sociopathically. These people are often highly intelligent, charismatic, self centred and with an over-inflated opinion of themselves. Success in the marketplace serves to reinforce their inflated egos and they see themselves as infallible. They surround themselves with admirers and Yes Men - people who will do what the master wants.

I prefer not to call individual people sociopaths but prefer to give a brief outline of the behaviour of corporate leaders and players and supply descriptive extracts. The terms closed minded and sociopathic describe broad patterns of behaviour. Make up your own minds if they show similar features. I don't think all those I describe do.

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Market Pressures
Mergers and Takeovers

My argument is that there are two prime factors responsible for the failure of the marketplace when conflicts of interest exist. The first of these is the intense pressure generated in the marketplace. The pressures generated by takeovers and mergers are particular coercive. Being competitive becomes more important than being responsible. Those who are responsible rather than competitive go under. Unsavoury behaviour becomes essential for survival and those subjected to these pressures develop explanations and justifications which make unsavoury behaviour legitimate for them.

The second is the erosion of civil society, norms and values by progressive marketisation. We are existential beings. The development and maintenance of norms and values can only occur by exercising those values and norms while interacting with others in day to day life. They need reinforcement. In a marketised world there are fewer and fewer opportunities to do so.

Health and aged care are two such areas but they are being rapidly marketised. Even childcare, the care of our young children is no longer sancrosanct. An examination of the business pages of our newspapers shows that the measure of success in these areas becomes profit rather than care. Corporations demand total dedication and promote a workaholic approach. Employees have little opportunity to develop their social selves. Value systems and social norms are blunted.

Under these market pressures only the tough and ruthless succeed and the system selects for them. When local opportunities dry up the financiers go global.

Wall Street patterns of thinking and ruthlessness have spread across the world. The financial giants are global and they have brought their practices with them. We can compare Citigroup's policy with Peter Smedley's "allfinanz" and "bancassurance" policy in Australia, some of which he brought to Mayne Health.

Last week, Merrill Lynch & Company's biggest rival was Morgan Stanley Dean Witter. Today it looks like Citigroup, the $50.4 billion giant to be created by the merger of Citicorp and Travelers Group .

Merrill and other financial firms are expected to respond to the Citigroup deal, announced yesterday, by looking for their own merger partners. In all likelihood, other behemoths will be formed, as a host of corporate chiefs ponder their suddenly diminutive status. Rumors swirled yesterday about possible combinations between big banks, brokerage firms, insurance companies and investment management companies. Will it be Chase Manhattan and Morgan Stanley? J. P. Morgan and Merrill Lynch? Or maybe Paine Webber and the Donaldson, Lufkin & Jenrette unit of Equitable?

The creation of Citigroup, with hundreds of offices from Boston to Beijing, is perhaps putting the most pressure on Chase, now the largest United States bank -- pending the merger plan announced yesterday -- and the biggest domestic brokerage firms, including Merrill. Chase and Merrill would each be well under half the size of the envisioned Citigroup, and each has global aspirations and businesses to match.

"This alters our sense of scale and boundaries," said Ron Chernow, the award-winning financial historian and author of "Titan," a forthcoming biography of John D. Rockefeller Sr. "It is an entirely new creature in that it puts investment banking, commercial banking, retail brokerage and insurance all under one roof. And not only under one roof: all four are very large players in their respective fields.
The Citigroup deal means there is no turning back to the old world of distinct financial industries where banks compete with one another, while brokerage firms vie with each other and insurance companies keep to their turf, analysts say.
"Going forward, it means increased pressure both to grow in absolute size and to grow in terms of the full range of financial services products," said H. Rodgin Cohen, a partner at the law firm of Sullivan & Cromwell, who advises big financial companies on their strategies.
The Citigroup merger is even expected to force mutually owned insurance companies to offer stock to the public.

"The starting pistol has sounded," said Michael Blumstein, a life insurance analyst at Morgan Stanley Dean Witter. "They will have to go public because they've got a behemoth on their back."
Chase, in a statement, said that the deal "will put pressure on Congress to pass the kind of liberating financial legislation so necessary for sustaining U.S. leadership in global financial services."

One thing is for sure. Citigroup's leaders hope the trend toward financial services giants will benefit the Salomon Smith Barney investment banking business that will be part of their new conglomerate. When asked what the merger meant for his competitors, Sanford I. Weill, Travelers' chairman and the new co-chairman of Citigroup with Citibank's John S. Reed, said: "We'd hope they'd all call the bankers at Salomon Smith Barney. They know how to do deals." SHAPING A COLOSSUS: THE INDUSTRY; Gigantic Shadow Over Wall Street The New York Times April 7, 1998

John S. Reed first realized his vision of Citibank as a financial supermarket for the emerging global middle class in Asia during the 1980's, when the bank opened hundreds of branches, granted thousands of mortgages and sold millions of credit cards from Taiwan to Thailand.

Now, by planning to merge Citibank's parent company, Citicorp, with Travelers Group, Mr. Reed, the Citicorp chairman, is betting that Asia's middle-class consumers are ready to buy an even broader array of financial services from a single company.
"This is the model that Asian and European banks will have to adopt if they want to compete," said David K. P. Li, the chairman of Bank of East Asia, a Hong Kong bank with a major presence in mainland China.

Mr. Li predicted that the deal would force Governments in Japan and South Korea to relax restrictions on financial institutions -- allowing them to offer commercial and investment banking services, as well as to sell insurance. "The Governments in this region have to recognize that this is the new model," he said.
Executives at Citibank's Asian headquarters said the bank was already discussing plans to offer Travelers insurance to its corporate and individual clients. That business is now dominated by American International Group and National Mutual, a French-owned company. But if Citibank were to offer homeowners insurance with every home mortgage, Travelers could quickly become a powerhouse here.
The deal greatly strengthens Salomon Smith Barney, the investment banking arm of Travelers, by giving it access to Citibank's web of connections throughout the region.
"For Salomon's point of view, access to Citibank's long history in Asia and distribution network can only benefit us," said Andrew Butcher, the director of business planning at Salomon Smith Barney in Hong Kong.
Bold Step for Citigroup On Shaky Asian Ground The New York Times April 9, 1998

As Western economies slow and deflation unfolds, excess capacity and excruciating competition will continue. Indeed, some firms are now anticipating disappointing profits with job cuts. Raytheon has announced terminations totaling 14,000, even though its earnings prospects appear solid.
The acquire-and-fire economy Forbes January 25, 1999

But the sale contrasts with Citigroup's strategy of expanding in emerging markets. Sandy Weill, chairman and chief executive, has said one of the key reasons he merged his mostly domestic Travelers group with Citicorp in 1998 was to tap into Citicorp's developing-world franchise.

During his fourth-quarter earnings review last week, Mr Weill reiterated his enthusiasm for taking Citigroup's products to new places. But the targets of opportunity he cited were largely in the former communist world.

Mr Weill was positively giddy about Russia, where in November Citigroup became the first US bank to open a retail branch with services including internet and telephone banking. Banking colossus needs to adjust its footwork: Recent shifts of emphasis are indicators of where in the world Citigroup is placing its bets. Financial Times (London,England) January 27, 2003

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Citigroup Culture

All of the Citigroup web pages and extracts describe the company's conduct and provide insights into its culture. They describe a series of massive scams. Large numbers of people from the company were involved. Everyone in the company must have had a good idea about what was happening yet no one spoke out and there were no whistle blowers. Senior staff could not have been unaware where the money was coming from and how. The money was rolling in and they simply chose not to look. They rationalised their practices dressing them in corporate jargon and self evidentness. This allowed them to openly promote deceptive practices.

Both Mr. McCaffrey and Mr. Hoffmann supervised Jack B. Grubman, a former telecommunications analyst at Salomon.
Two years ago, according to a document cited in the lawsuit, Mr. Hoffmann wrote Michael A. Carpenter, then head of Salomon, that he hoped to "better integrate our research product with the business development plans of our constituencies, particularly investment banking."

The suit also describes a seminar led by Mr. McCaffrey in which "analysts learned how to manipulate their financial models to support underwriting" by Salomon. Citigroup Removing Officials From Salomon Unit The New York Times October 10, 2002

Some individuals were inevitably worried by the morality of what was happening and this was reflected in their private emails. Those who did speak out were likely to be out of a job.

Some of the most entertaining reading in the masses of evidence that regulators have made public for use by aggrieved investors in their own lawsuits is the commentary by Salomon Smith Barney brokers about Jack B. Grubman's performance as the firm's top telecommunications analyst.

As far back as 2000, brokers were expressing outrage and betrayal over Mr. Grubman's woeful stock picking, which many noted was related to his dual roles as investment banker and analyst. Yet even as the brokers howled about Mr. Grubman's tendency to keep recommending stocks as they collapsed in price, the analyst retained his job at Salomon until last August.

Here are some outtakes from Salomon brokers late in 2000. Mr. Grubman "should be publicly flogged," one said. "Under the category, Bonus for Creating Tax Loss Carry Forwards for Retail Clients, Grubman should be recognized accordingly as our best analyst."

Many said the analyst should be fired, while another broker said, "If Jack Grubman is a top 'research analyst' then I have a bridge to sell."

Another remarked: "Boo Hiss. Banking showed its ugly head."

During the year these comments were made, Mr. Grubman was paid $14.2 million in salary and bonus.
"Grubman has zero credibility with me or my clients. He is collecting from two masters" at financial consultant expense.

Then referring to investment banking functions, he continued: "He brings IB business to the firm and loses his objectivity. I am sure that nothing will come of my comments. The spin-masters will say that everyone else does it. Is there an honest person left?" In Wall Street Hierarchy, Short Shrift To Little Guy The New York Times April 29, 2003

Mr. Chacon says that he began complaining to his immediate superiors: to the branch manager, the regional manager and upward. A memorandum, dated May 2000, that he wrote to Jay Mandelbaum, vice chairman of Salomon, describes improper allocation of hot issues and notes that superiors had told the broker that the allocation of Rhythm Netconnections shares to Mr. Ebbers was done "to encourage him" to give additional banking business to the firm. According to Mr. Chacon, he received no response from Mr. Mandelbaum. He was terminated less than two months later.

The spokeswoman for Salomon said that Mr. Mandelbaum did not receive the memorandum, which Mr. Chacon has presented in his wrongful-termination dispute."Just as we believe he fabricated the memo, there is no record of his ever having raised his alleged concerns to his superiors," Ms. Nazerian said. She added that Mr. Chacon was fired for violating corporate policy. Lawsuit Says Salomon Gave Special Deals to Rich Clients The New York Times July 18, 2002

The culture in the merged Citigroup came to be dominated by Weill and Carpenter's more ruthless results oriented circle of supporters. The Travelers/Salomon Smith Barney culture was promoted.

Citicorp and Travelers Group Inc., which agreed last month to merge into Citigroup, designated the management team yesterday to run what would be the world's largest financial services concern, provided it wins regulatory approval.

While the overall hierarchy at Citigroup has ample representation from both companies, Travelers executives secured more of the top leadership spots and are best positioned to stamp their company's identity on the merged concern.

Mostly notably, Jamie Dimon, co-chairman and co-chief executive of Travelers' Salomon Smith Barney investment banking and brokerage unit, was named Citigroup's president. The post makes Mr. Dimon the clear heir apparent eventually to succeed Citicorp's chairman, John S. Reed, and Travelers' chairman, Sanford I. Weill, who will be co-chief executives of Citigroup. Leadership Plan for Citigroup Tilts in Favor of Travelers The New York Times May 7, 1998

Indeed, Mr. Reed's departure only signals that similar, hard-minded decisions about how to manage Citigroup still effectively lie ahead.
Last year, he and Mr. Weill divided their managerial duties. Mr. Reed was given authority over Citigroup's Internet strategy and other technology initiatives. Mr. Weill, in a move that cemented his power at Citigroup, was given the corporate equivalent of the crown jewels: responsibility for supervision of all other operational lines at the bank and the all-important right to determine compensation packages for his managers.

At that point, Mr. Weill had essentially outmaneuvered Mr. Reed, a view held by many at the company and on Wall Street, although one that Mr. Reed, a wily corporate survivor, might not have shared. Reed Announces Plans to Step Down as Co-Chief of Citigroup The New York Times February 29, 2000

Citigroup was not unique and I have included enough on these web pages to show that other financial conglomerates were similar and that the people who ran them were not markedly different.

Some accounts suggest an arrogant male dominated culture and this is what you might expect. Woman in the company have accused it of sexual harassment.

The suit against Smith Barney painted a tawdry picture of sexual harassment and discrimination, detailing a "boom-boom room" at the firm's office in Garden City, N.Y., where carousing male bosses would grope and harass their female subordinates.

The case has already had broad repercussions, chipping away at the securities industry's established system of settling employment disputes through mandatory industry arbitration -- a system that critics said favored securities firms and disadvantaged employees.

The Smith Barney case has also influenced a similar class-action lawsuit filed by women brokers at Merrill Lynch that is scheduled for a final Federal court hearing in Chicago in September. A Revised Pact Is Approved In Smith Barney Bias Case The New York Times July 25, 1998

The company's outward form and culture was of a socially responsible organisation coping with conflicts of interest in a professional way. Those who made these statements may well have identified with corporate rationalisations and believed what they were saying.

Duncan King, a spokesman for Citigroup, said he could not comment about specific client relationships but spoke more generally about the bank's role as an adviser. "Potential conflicts have always been inherent in our business," he said. "Our obligation is to manage them appropriately, which is essential if we are to maintain our reputation for providing quality advice." Market Place; Many creditors are increasingly worried that big banks have conflicting roles as both lenders and advisers. The New York Times June 13, 2002

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Citigroup :: The People

The sort of people who come to lead these companies give a good indication of the sort of corporate culture they will support. The people who are successful and are rewarded for this give an indication of the sort of culture that has developed. The people who stand out in Citigroup are Sanford (Sandy) Weill. Jack Grubman, Benjamin Lorello and Michael Carpenter. John Reed is also of interest as he went on to become chairman of the stock exchange. Charles Prince has recently taken over from Weill.

Sanford (Sandy) Weill

Mr Weill has had an interesting career. He is a twice made billionaire and primarily a predatory acquirer. In his younger days he built up an empire and then when he was at the top he lost out in a board room battle.

He promptly started again with a small company which he grew by mergers and takeovers until it included Travellers Insurance, Salomon Brothers and Smith Barney. He tended always to buy and merge into companies with a better reputation than his own and assume the name of the company acquired. Citigroup was his ultimate merger.

The market value of Citigroup, which he built over 16 years into a conglomerate with $1 trillion in assets, tumbled 25 percent, or $45 billion, on Monday and Tuesday, as a Senate committee began investigating - - - - .
Without a strong stock price, Mr. Weill will have trouble financing acquisitions -- undoubtedly a frustration to a deal maker like him. Mr. Weill has used his companies' rising stock to pay for a string of purchases, from insurers to banks to loan companies.
In Two Days, Citigroup Chief Traded Halo For Headaches The New York Times July 27, 2002

Still, one senses a turning point, the ebbing of power of one of the financial world's most visible tycoons, the slow exit of a take-no-prisoners deal maker who vaulted from near-obscurity to the leadership of the world's single biggest financial empire.

Tough and nimble, Sandy Weill has almost always been the last man standing in a amazing string of deals over four decades. Starting with a tiny brokerage outfit he helped found in 1960, he spent the 1970's gobbling up distressed white-shoe Wall Street firms, suffered a rare reversal in a power struggle at American Express, then roared back with a series of acquisitions that culminated in the blockbuster 1999 merger between Travelers, Mr. Weill's insurance and investment firm, and Citicorp, the venerable bank run by John Reed. Sandy Weill Steps Down The New York Times July 19, 2003

If ever there was a case in which investors bought a boss, not a business, it came in the fall of 1986 when a sleepy lender to borrowers with not very good credit, known as Commercial Credit, went public.
Yesterday Mr. Weill, 70, announced that he was stepping down as chief executive of the company, which after a long series of mergers and acquisitions became Citigroup, the global financial giant. Along the way it went through the names of Primerica and the Travelers Group before merging with the bank then called Citicorp.
Few thought that Commercial Credit was a great business at the time. Only a couple of years earlier, the company had been unable to find a buyer. Control Data, which owned Commercial Credit, wanted out, and it brought in Mr. Weill in the hope of luring investors.

Mr. Weill's reputation had been based on the growth of a small brokerage firm he helped found in 1960 -- first named Carter, Berlind, Potoma & Weill -- into the Wall Street giant Shearson Loeb Rhoades by the time it was acquired by American Express in 1981. Mr. Weill got the No. 2 job at Amex, but eventually lost a power struggle to the chairman, James D. Robinson III, and found himself out of a job.

Later, when he eventually merged his second empire with Citicorp, he made sure that he was co-chief executive, and when a power struggle developed this time, he won.

Mr. Weill's two empires -- which in a way were one because much of what was Shearson eventually ended up at Citigroup -- grew in similar ways. He was always happy to take on the name of the company with which he was merging. He made a practice of buying companies with histories more glorious than their current conditions and whipping them into shape -- all the while harnessing the fame of the name acquired.
There were, to be sure, some reversals. His mergers were often questioned on Wall Street. Primerica, an empire run by Gerald Tsai Jr., a onetime wunderkind mutual fund manager, was seen as overleveraged and perhaps just a means by which Mr. Weill could return to Wall Street through ownership of Primerica's Smith Barney unit.
He (Weill on retiring) also said he might help the company with its hedging of foreign currencies, but that may have been a joke about his reputation for micromanaging.
CHANGING THE GUARD: MARKET PLACE; A Climb to Riches, One Merger at a Time The New York Times July 17, 2003

Mr. Weill built Citigroup over the last decade through a series of audacious acquisitions that culminated with the merger of Travelers and Citicorp, which for the first time combined a commercial bank and brokerage firm. That deal forced lawmakers to repeal the 1933 Glass-Steagall Act, which had barred such combinations, in 1999. CHANGING THE GUARD: THE OVERVIEW; Chief of a Financial Giant Says He'll Step Down at Year's End The New York Times July 17, 2003

As a financier, Sanford I. Weill seemingly never met a deal he could not pull off.

He engineered the acquisition of the biggest bank in the United States and of the second-biggest bank in Mexico along the way to creating Citigroup, the world's largest financial company. He persuaded Congress to change 66-year-old laws to clear the way. A Wizard at Financial Mergers Loses Out on a Proposal to Merge Two Music Organizations The New York Times October 8, 2003

Weill's greatest triumph was the merger with John Reed's Citicorp to form Citigroup. Over the years he surrounded himself with dedicated followers who shared his views and they were given positions of power and succession.

Some shareholder advocates and competitors dismissed the planned management changes (Weill's resignation) as largely cosmetic because Mr. Weill is not leaving the company and because his handpicked successors are his most loyal lieutenants.

Indeed, Mr. Weill, a self-described workaholic, said he planned to remain very involved in the company. CHANGING THE GUARD: THE OVERVIEW; Chief of a Financial Giant Says He'll Step Down at Year's End The New York Times July 17, 2003

Analysts attributed the advantage enjoyed by Travelers executives to the strong cadre of talented loyalists Mr. Weill has put together the last several years. Mr. Reed, on the other hand, has periodically reshuffled or ousted prominent senior executives.

"One of Sandy's strengths is to keep very high-powered people in place," said Joan Solotar, an analyst with Donaldson, Lufkin & Jenrette Securities. Leadership Plan for Citigroup Tilts in Favor of Travelers The New York Times May 7, 1998

Weill was a highly focussed microeconomic manager. He insisted on results and rewarded accordingly. He included himself in the rewards. He became a billionaire. The fraud in Smith Barney suggests that he did not involve himself directly in the management of subsidiaries but he could not have been unaware of what was happening. By doing so he kept a distance between himself and unsavoury conduct. Rubin described below had a career in business (chief executive Goldman Sachs) and politics before he joined Citigroup in a senior position. Reports suggest he may have had some difficulty in separating his roles.

Mr. Weill, who rarely brooks challenges to his authority, edgily teases Mr. Rubin about his campaign against tax cuts, which has prompted Citigroup brokers to write irate e-mails about affronted clients. He also gripes about Mr. Rubin's addiction to multitasking in meetings. "It's rude," he said.

But those appear to be minor distractions. Mr. Weill, 68, is as earthy and blunt as Mr. Rubin is measured, but both men say they get along famously. Mr. Weill said his partner's analytical ability and experience are "invaluable" to him.

So is his loyalty. When Mr. Rubin arrived, Mr. Weill was locked in a power struggle with his co-chief executive, John S. Reed. After failing to reconcile the two, Mr. Rubin sided with Mr. Weill in a Sunday board meeting in early 2000 that resulted in Mr. Reed's retirement. ENRON'S MANY STRANDS: DUAL ROLE; Rubin Relishes Role of Banker As Public Man The New York Times February 11, 2002

Citigroup's chief executive, Sanford I. Weill, who is famously obsessed with his company's share price, addressed employees after the market closed yesterday, said Leah Johnson, a company spokeswoman. Sinking Feeling Is Now Settling Over Citigroup The New York Times July 24, 2002

His dealings with Grubman show that he knew what was happening in Smith Barney and was prepared to capitalise on this. The whole industry knew what was happening and Weill could not have been unaware of this - unless he had deliberately chosen not to look.

"Sandy has been a micromanager for 50 years," said Roy Smith, a former Goldman Sachs partner and a business school professor at New York University. "And there is a consequence to this. The real question is this: can any single firm be active in so many different areas without incurring such conflicts and the resulting litigation."

Mr. Grubman symbolized this inherent conflict: as a research analyst, his primary responsibility was to provide objective research to the firm's institutional and retail clients.

But Mr. Grubman was not paid $48 million over three years in the 1990's to provide investment advice to individual investors.

Instead, it was his ability to corral the banking business of a new wave of telecommunications companies ÷ many of which were competitors of AT&T, like WorldCom ÷ by publishing positive research on them that made him a meal ticket for Mr. Weill. Citigroup's Chairman Is Barred From Direct Talks With Analysts The New York Times April 29, 2003

Like others in the company Weill accepted that the Enron transactions were legal without regard to their morality or intention to assist in fraud.

On Thursday, Citigroup released a memorandum that Mr. Weill had sent to Citigroup's 270,000 employees. "In the last few days, our company has been severely criticized for past activities in our Corporate and Investment Bank," Mr. Weill said. "I feel badly, and I truly regret the pain that has been caused." But he said he believed that the investment bankers who dealt with Enron did nothing that was illegal or in conflict with accounting principles. In Two Days, Citigroup Chief Traded Halo For Headaches The New York Times July 27, 2002

Weill was never shy about rewarding himself and he became a bilionaire.

Over the years, Mr. Weill has accumulated a huge hoard of options on the stock of his ever-expanding company. Last year, Citigroup's board gave Mr. Weill options on 619,095 shares on top of $26 million in cash and stock. That was down sharply from the 18.2 million options he received in 2000.

"He was my top pig a few years back," said Graef Crystal, a compensation analyst who compiles an annual list of what he calls executive pay "hogs and heroes." Mr. Crystal figured that Mr. Weill's 2000 pay package was worth $215 million, raising his total pay over 10 years to slightly more than $1 billion. Reed Announces Plans to Step Down as Co-Chief of Citigroup The New York Times February 29, 2000

Like Richard Scrushy, Richard Eamer and other corporate leaders in the USA Weill became a great philanthropist and a patron of the arts and of good causes. He was lavish with his own and shareholder's money.

TYCO INTERNATIONAL'S lawsuit against its former chief executive, L. Dennis Kozlowski, is shining a harsh light on yet another area ripe for abuse by imperial chief executives: the murky line between corporate philanthropy and their personal philanthropy.
Even trustees and their closest confidants have a hard time getting to the bottom of corporate philanthropy. A well-connected director at one of New York City's most prestigious arts institutions recalled efforts a few years ago to determine the terms of a contribution by Sanford I. Weill, the chief executive of Citigroup, for $100 million -- an astounding amount even by the philanthropic standards of Fifth and Park Avenues -- to Cornell University for its medical school. The director, who declined to be identified for fear of disrupting friendships, called four friends on the Cornell board, only to be told they didn't know.

Two prominent fund-raisers in New York City said they were confident that the gift of Mr. Weill and his wife, Joan, was, in fact, the couple's money. The Weills have since made a second $100 million gift to the medical school, as well as other gifts to the university. Worth an estimated $1.1 billion, Mr. Weill does not need to tap the corporate coffers to create an aura of beneficence for himself.

Citigroup -- one of the few companies that does disclose its philanthropic contributions in detail -- has been remarkably generous, however, to some of the Weills's favorite nonprofit institutions.
The biggest contributions made by Citigroup over the last four years were to the three institutions most identified with the Weills.
In Charity, Where Does a C.E.O. End and a Company Start? The New York Times September 22, 2002

When it comes to staying power, which is gauged by demonstrating the ability to donate to the cause and line up other ticket buyers, few have a better record than Mr. Weill, the chief executive of Citigroup, and his wife, Joan.

In the last two years they have played a leading role in at least 18 events. The couple have repeatedly been chairman and chairwoman for the Alvin Ailey Dance Theater Foundation. For the last 15 years, Mr. Weill has served as a co-chairman of the annual gala of the Hebrew Home for the Aged with Maurice R. Greenberg, chairman of the American International Group. The gala raised $2.8 million at its recent fall benefit, a drop from the previous year's total of $3.3 million. List of Key Names For the City's Galas Keeps Expanding The New York Times November 18, 2002

In all the analysis generated by Mr. Weill's announcement, one aspect of his life has been largely overlooked, namely his spectacular philanthropy. A native New Yorker, Mr. Weill has given generously to the city of his birth, particularly its cultural and medical institutions. He has made it clear that this will continue; indeed, he has described himself as a born fund-raiser. The big question is whether Mr. Weill will actually be able to let go at Citigroup. Sandy Weill Steps Down The New York Times July 19, 2003

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John Reed

John Reed became CEO of Citicorp and Citibank in the 1984. He too was an acquirer and was largely responsible for building a network across the world. It was this global network which attracted Weill. He could use Citicorp/Citibank's global network as a vehicle for expanding the Salomon Smith Barney investment banking business.

Reed's willingness to buck the system and exploit it to the limits is revealed in his resistance to regulatory reform in the early 199os and the way the bankers continued to launder money for dictators and criminals long after this conduct had been exposed and heavily criticised. Citicorp became global in 1902 and Reed accelerated this.

Citibank opened its first six branches in Asia in 1902 -- in Shanghai, Yokohama, Manila, Singapore, Calcutta and Hong Kong. The company has been active in the region ever since, though it ramped up its expansion in the 1980's under Mr. Reed's direction. - - - - - Citibank has made its logo as recognizable in Kuala Lumpur as Kansas City. Its Asian operations earned $866 million in 1996, on revenue of $3.3 billion. Bold Step for Citigroup On Shaky Asian Ground The New York Times April 9, 1998

Reed seemed to manage in a more direct manner than Weill and more readily fired senior staff. As a consequence Weill took a more established team into the Citifroup merger and this team triumphed.

That said, Mr. Reed leaves Citigroup after a 35-year career in which he wore and bore the mantle of a wunderkind after becoming Citicorp's chief executive in 1984 when he was just 45. His career has witnessed giddy highs and some notable lows, but ends on a note of accomplishment in an industry that has sorely lacked visionaries and risk-takers like Mr. Reed.
To achieve his goals, he went in many different directions: hired marketing wizards with no banking experience; coolly churned through a series of talented executives before leaving them by the wayside; pursued nascent banking technologies like automated teller machines with monkish determination; and ignored, and then sharply scaled down, a once formidable corporate banking business that nearly brought Citicorp to ruin in the early 1990's.
The final act of his career, and one that was characteristically risky, was the merger with Travelers, a move that created the world's largest financial services concern, recommitted the company to corporate banking and hitched the merged company's fortunes to the unproved virtues of cross-selling financial products.
In that capacity, Mr. Reed will leave the banking industry as he once came in -- coolly analytic and rational.
Reed Announces Plans to Step Down as Co-Chief of Citigroup The New York Times February 29, 2000

Reed was a prominent member of the business establishment and a member of the business round table. When chairman Grasso was ensnared in controversy and resigned in 2003 Reed became chairman of the New York Stock Exchange.

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Michael A. Carpenter

Weill surrounded himself with long term staff who did what he wanted so had a relatively stable executive. One of these was Michael Carpenter whom Weill put in charge of Salomon Smith Barney. He managed at a distance setting performance goals and electing not to look at the consequences. He had been in some trouble because of this once before and left a previous company under a slight cloud. Weill fired him after the fraud settlement. Salomon Smith Barney was the prime target of the fraud investigations and Carpenter had been in charge at that time.

In a move that will most likely lead to layoffs, Citigroup said it planned to combine all corporate banking activities into one unit jointly overseen by Michael A. Carpenter, former chairman of Travelers Life and Annuity, and Victor J. Menezes, former president of Citicorp.
Mr. Carpenter has won praise for his management of Travelers' life insurance and annuities business although he also ran Kidder Peabody & Company during the financial scandals involving Joseph Jett, the onetime bond-trading star.
Citigroup President, Heir Apparent to Top Job, Quits Abruptly The New York Times November 2, 1998

For Michael A. Carpenter, the chief executive of Salomon Smith Barney, the questions about his firm's role in financing Enron and WorldCom may have a familiar ring.

Eight years ago, when he was chief executive of Kidder, Peabody, the firm discovered that Joseph Jett, a bond trader, had reported $350 million in phony profits. Mr. Carpenter ultimately resigned from the firm, saying that he was proud of his accomplishments but was making room for a new management team.

"I have a feeling of deja vu," said a former Kidder executive of Mr. Carpenter's current and former troubles.

Having helped transform Salomon, a division of Citigroup, into one of the most profitable investment banks, Mr. Carpenter has been trying to limit damage to Salomon and Citigroup ever since Enron's troubles emerged last fall.
Mr. Weill hired Mr. Carpenter in 1994, after he left Kidder, to head the life insurance unit of Travelers, which merged with Citicorp to form Citigroup in 1998. "Sandy thought he was a good strategist," said an executive close to Mr. Weill.

Mr. Carpenter shares a zeal for cost-cutting with Mr. Weill.

"Salomon Smith Barney has been at the forefront of cost control during this market downturn," said Henry McVey, an analyst at Morgan Stanley. Thanks in part to Mr. Carpenter's tight controls, Salomon's investment banking profits increased 4 percent in the second quarter.

Among other things, Mr. Carpenter has been disciplined in what he pays Salomon's bankers and brokers.
Salomon has also increased its share of a dwindling investment banking business as competitors struggle.
A Strategist and Cost-Cutter Seeks to Steer Citigroup Through Scandals The New York Times August 2, 2002

Carpenter's comments suggest that he had simply not grasped the enormity of what was happening. He looked past it.

"The short-term market response to these reports, frankly, is surprising," Mr. Carpenter wrote in a memorandum to Salomon's bankers and brokers last week. "I am very confident that the strength of our business model will prevail in the long term."

Along with calming Citigroup shareholders, employees and clients, Mr. Carpenter needs to satisfy Citigroup's chief executive, Sanford I. Weill. Mr. Carpenter, 55, is one of a handful of executives viewed as a possible successor to Mr. Weill, 69.
Though no one questions the profitability of the investment bank, competitors and former colleagues are wondering if Mr. Carpenter did enough to track the bankers involved in the Enron and WorldCom financings.

Other executives wonder whether a management flaw appeared eight years ago. "He is not a hands-on sort of guy," said a former executive at General Electric, which had owned Kidder, of Mr. Carpenter.

A report on the Jett scandal by Davis Polk & Wardwell, Kidder's law firm, found that Mr. Carpenter relied on another executive to monitor Mr. Jett's trading because he "did not have a background in securities trading."
"Whatever the business model is, it's working," said a competitor.
A Strategist and Cost-Cutter Seeks to Steer Citigroup Through Scandals The New York Times August 2, 2002

Jack Grubman, Benjamin Lorello and the other bankers and analysts flourished under Carpenter. He had a business model that worked and he did not look any further than that.

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Jack Grubman

Probably more has been written about Grubman than about any other analyst or banker. Grubman seems to have been a very ordinary person who exerted a profound influence.

Jack Grubman, like all analysts really just a glorified business beat reporter, was paid tens of millions of dollars by Salomon during the last half-decade. From Salomon's perspective, there was, of course, a real (albeit unethical) economic rationale for such compensation, but from Grubman's perspective, there was one additional factor: he lives and worked in Manhattan. City of Schemes The New York Times October 6, 2002

Many consider Grubman the architect of the technology bubble. He displayed a remarkable ability to rationalise and justify. He made some good calls based on inside information about AT&T, and rapidly rose to fame because of this. He had a massive following and because of this many of his reports became self fulfilling. All of this contributed to his self confidence and his tendency to brag - something which almost brought Weill down.

He became dictatorial and quite unable to accept that he was wrong in his predictions. He ignored warning signs.

He started life as a computer modelling expert and worked for AT&T for a number of years before becoming an analyst. Quite what happened at AT&T we don't know but Grubman was consistently negative about AT&T and positive about the small startups which competed with it. His glowing reports helped to build them into giants with feet of clay.

It was Grubman's early negative reports about AT&T that built his reputation. The exception to this came in 1998 when Weill persuaded Grubman to upgrade AT&T briefly.

Grubman is a particularly interesting character because it is clear that he identified and believed in his vision and simply could not accept that it was flawed. He was capable of dishonesty and was even able to boast of this. When pressured by bankers not to downgrade stocks he complied. His ego and convictions were such that this did not seem to cause him much discomfort.

Articles in the New York Times and The Financial Times (London) describes Grubman's career and his rationalisations giving an insight into his character. I reproduce sections from both.

Mr. Grubman, an only child, grew up in a family of modest means, living in a Philadelphia row house. His father was a carpenter for the city; his mother worked in a dress shop. He received a bachelor of science degree in mathematics from Boston University in 1975 and a master's in probability theory from Columbia in 1977. Then he went to work for AT&T.

At first, he analyzed the demand for long-distance services, using computer models. He later worked in corporate planning for the company's breakup in 1984. In January 1985, he left for Wall Street, joining Paine Webber as a telecommunications analyst.

His Wall Street beginnings were inauspicious. In May 1986, according to regulatory filings, Mr. Grubman failed the exam, called the Series 7, that anyone who wants to be an investment professional must pass.

He subsequently passed. But even more important, he figured out how to stand out from the crowd of analysts covering telecommunications, which in those days meant analyzing AT&T and its recently freed regional Bell offspring. Mr. Grubman's knowledge of the company's internal operations gave him an edge. According to an analyst who is no longer in the business, Mr. Grubman regularly beat out competitors with information on AT&T that nobody else had.

"Jack had information that was never made public," said this person, who like most others interviewed about Mr. Grubman asked for anonymity for fear of ruining relationships on Wall Street. "I covered the company like a rug, and it was extremely concerned about leaks at the time."

Mr. Grubman gained attention from investors by being cautious about AT&T in a crowd that was mostly positive. He may also have recognized that the advent of competition after the AT&T breakup meant that there would be many more stocks to take public and bonds to issue than there were in the one-company era.

"By being negative on AT&T, Jack was able to gain the ear of other telco C.E.O.'s," the former analyst said. In 1988, for example, Mr. Grubman met Bernard J. Ebbers, the entrepreneur who eventually built WorldCom into a telecom colossus. Mr. Grubman parlayed the information he gleaned from small players in the business to become an expert in the sector.

 Finding Fame and Fortune
In 1994, Mr. Grubman, well on his way to becoming a star analyst, left Paine Webber for Salomon Brothers.

By the time the firm was taken over by Smith Barney in 1998, Mr. Grubman had toppled rivals and gained the top ranking in his industry on the All-American Research Team, as listed by Institutional Investor magazine.
Telecom deals were pouring in, and Mr. Grubman became the go-to guy. He ended up earning an estimated $20 million from the firm in 1999.

In January of that year, he and his wife, Luann, bought a town house on the Upper East Side of Manhattan for $6.2 million in cash. Soon, they were renovating the entire house.

As the number of telecom deals ballooned, and as Mr. Grubman's picks ascended, his hegemony in the industry and the firm took hold. That attracted still more business from executives who knew both how positive he was on the sector and how powerful his buy recommendations could be. In March 2000, for instance, when he raised his price target for Metromedia Fiber Network, the stock jumped 16 percent in one day. Companies deluged Salomon Smith Barney for their capital needs, and Mr. Grubman churned out glowing research reports, annually collecting a multimillion-dollar pay package.
And Mr. Grubman, at the top of his game, was scoffing at anyone who questioned the propriety of having an analyst, whose job is to provide investors with objective investment advice, work closely with the firm's investment bankers. "What used to be a conflict is now a synergy," he told Business Week in May 2000. "Objective? The other word for it is uninformed."

Soon, however, the bottom fell out of McLeod and the telecom sector.
Many companies he favored are defunct or are trading for pennies a share or have been delisted from the Nasdaq market.

- - - - - - But Mr. Grubman's reports show a particular disregard for the dangers of heavy debt piled on unproven companies. Debt, though not a big factor in the Internet debacle, was the 800-pound gorilla in telecommunications.

Nevertheless, Mr. Grubman continually swatted away speculation that debt might become a problem for his companies -- talk that began creeping into the market a year ago when Ravi Suria, then a convertible-bond analyst at Lehman Brothers, warned of looming debt problems in telecommunications. One money manager said Mr. Grubman often played down risk. "If a company comes out and doubles its debt-to-equity ratio, you would say the risk is greater," the manager said. "But he was always writing positive reports around times when his companies were raising debt."
Mr. Grubman's reputation has also been tarnished inside Salomon Smith Barney, where the sales force used to treat him with deference. In the old days, on the morning call to brokers, listeners would hang on the analyst's every utterance, according to several witnesses. He would speak expansively about his favorite companies, taking 20 minutes to get through all his points.
Telecom's Pied Piper: Whose Side Was He On? The New York Times November 18, 2001

As much as any analyst, Mr. Grubman has straddled the line that is supposed to separate banking and investment research. He has boasted of his close relationship with senior executives of client companies, like Bernard J. Ebbers, the former chief executive of WorldCom.

Two years ago, Mr. Grubman told Business Week, "What used to be a conflict is now a synergy." He added that big investors respected his opinions because "they know I'm in the flow of what's going on." TURMOIL AT WORLDCOM: THE ANALYST; Timing of a Rating Shift Is Raising Some Questions The New York Times June 28, 2002

Mr. Grubman, probably one of the most influential telecommunications analysts on Wall Street, has consistently defended his view that smaller, more entrepreneurial companies like WorldCom would ultimately overtake larger, more established companies like AT&T, the long-distance leader. His bullish opinion of the prospects of these smaller companies contributed to the formation of expectations for the industry that resulted in an overwhelming glut of communications capacity and a string of corporate failures. House to Question Executives of WorldCom The New York Times July 8, 2002

Taking after a father who spent several years as a professional boxer before a job in the local highways department, Mr Grubman himself became a fighter and an avid follower of boxing.

The pride in his boxing background - evident from the boxing posters and gloves on display in his office at Salomon - also points to a pugnacious character and a doggedness that enabled him to claw his way to prominence.
It was a single, powerful idea that finally set him apart from the herd. The telecoms industry was on the brink of a revolution, he predicted. With fibre-optics transforming the economics of the business, it was possible to build new global communications networks from scratch and undercut long-established companies that were tied to old technologies and cost structures.

With Mr Grubman providing much of the intellectual framework, Salomon - where he had moved in the early 1990s - played a key role in raising the cash and masterminding the mergers that brought this vision to life. Mr Grubman had little time for old-time companies like AT&T: newcomers like WorldCom, Qwest and Global Crossing were the future. His uncompromising views coincided with an unprecedented investment boom.
The rags-to-Wall-Street-riches story may be genuine, but Mr Grubman was not above a bit of self-mythologising along the way. He once maintained, wrongly, that he came from the poor South Philadelphia area that was made famous by another, fictional boxer - Rocky Balboa. And he confessed to sprucing up his resume with a claim that he attended the Massachusetts Institute of Technology.

Inside Salomon, his aggressive and uncompromising approach also made him a controversial figure - as did his close involvement in the firm's deal-making. According to some former colleagues, Mr Grubman was a bully who often acted as though he ran the firm's telecoms group. His reach went beyond research and affected the investment bankers who worked with the companies, too. "Jack would be the first to say he wanted to be an investment banker," says one former Salomon banker.

His protectiveness towards the companies he recommended went so far that he practically chose which investment bankers would work on which accounts, according to one associate. If he deemed a banker unworthy of working for one of his clients, he would sometimes tell the client not to co-operate. "Having him behind you meant whether you would produce revenues or not," says a former Salomon banker.
Mr Grubman was unapologetic about his style of operation when he appeared before a sceptical congressional committee in June. His defence of his position, made at the height of the bull market, was disarmingly simple. "What used to be a conflict is now a synergy," he told Business Week. He argued that he could benefit both companies and advisers by being close to both. It remains to be seen whether that will convince Eliot Spitzer, the New York attorney general, who has been examining Mr Grubman's role.

Yet few of those who know Mr Grubman accuse him of the kind of bad faith apparently displayed by another analyst investigated by Mr Spitzer - Henry Blodget of Merrill Lynch. While Mr Blodget recommended some stocks publicly while criticising the companies in private, Mr Grubman's belief in his industry never wavered. "He had a conviction and he sold that conviction," says one former colleague. Wall Street's faithful bull: MAN IN THE NEWS JACK GRUBMAN: Financial Times (London,England) August 17, 2002

Mr. Grubman's seal of approval was nearly all upstart telecom companies needed to access billions from Salomon-orchestrated bond offerings and initial public offerings. His bullish research reports urging investors to buy these stocks were all part of the package deal, since Mr. Grubman was ostensibly an analyst dispensing objective advice to clients. Jack Grubman's Last Deal The New York Times August 17, 2002

While he said he regretted that he had failed to predict the collapse of the telecommunications industry, he said, "I am nevertheless proud of the work I, and the analysts who worked with me, did." He added that he felt he had been unfairly singled out for criticism.

In a memo to Salomon employees, Michael A. Carpenter, the firm's chairman, called Mr. Grubman a "valued member of our research team" and said the analyst had always conducted himself professionally and in accordance with legal and ethical standards.
(Grubman's vision) No one was more certain than Mr. Grubman that this demand was going to be explosive and that the companies most likely to profit from it would be new entrants unencumbered by the bureaucratic mentality common among established companies. He proselytized this view with institutional investors across the country in speech after speech.
"Jack Grubman ignored obvious signs of trouble at WorldCom, including repeated downgrades by credit- rating agencies," said Martin Weiss, chairman at Weiss Ratings Inc., an independent research firm. "He was clearly a leading proponent of WorldCom shares, almost to the bitter end, despite abundant signs of trouble."
Bullish Analyst Of Tech Stocks Quits Salomon The New York Times August 16, 2002

The sign behind Jack Grubman's desk used to say it all. In large block capitals, it declared the mantra that helped to make the telecommunications stock analyst a Master of the Universe during Wall Street's biggest bull market: "BUY NOW Wall Street's faithful bull: MAN IN THE NEWS JACK GRUBMAN: Financial Times (London,England) August 17, 2002

If investors need any more evidence that many folks in high places on Wall Street still don't get it and may never, they need read no further than Mr. Grubman's resignation letter. It contains just one parenthetical reference to his woeful record in stockpicking, which was his job to get right, not wrong. The rest of the letter was a whinefest worthy of a 6-year-old.

"The current climate of criticism," Mr. Grubman wrote, has made it impossible for him to perform to his high standards. Apparently, Mr. Grubman is effective only when stock prices are rising.

"The relentless series of negative statements about my work, all of which I believe unfairly single me out, has begun to undermine my efforts to analyze telecommunications companies," he added. A Star Analyst Exits Loudly. Others Hide Backstage. The New York Times August 18, 2002

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Weill, Grubman, AT&T, and the Nursery School

Probably the best example of the culture and accepted behaviour in Citigroup was this sordid saga. The information comes from an email Grubman sent to a friend boasting of Weill and Grubman's success in playing AT&T and its CEO Armstrong "like a fiddle". Weill denied some but not all of it. Other memos from Grubman to Weill lend support to the email.

Mr Armstrong was a friend of Weill and on the board of Citigroup. He was less than enamoured with Grubmans negative reports about AT&T. There was a lucrative AT&T contract to be won and Weill was according to Grubman also looking for Armstrong's support in his board room battle with John Reed, at that time joint CEO. It is clear that Weill and Grubman had several discussions about this issue and that Grubman went with Weill to AT&T board meetings.

In essence Grubman made a positive report about AT&T and Citigroup got the contract. He then went back to being negative about AT&T. Citigroup in turn donated US $1 million to a select New York nursery school in order to secure the acceptance of Grubman's twins at the school. Weill admitted only to asking Grubman to look at AT&T again and to making the donation. The school denies it was influenced by the donation. The issue was wether securing the admission of Grubman's children to the school was a bribe or reward for generating a positive report. What is revealed is a close personal link between Weill the CEO and Grubman the analyst who made so much money for Citigroup.

Investors who followed Grubman's advice and bought AT&T shares lost heavily as the share price fell soon after.

In the fraud settlement Weill's contact with analysts was restricted but he was not penalised. Grubman was fined and barred from practicing as an analyst.

People close to AT&T said yesterday that in January 2000, AT&T began a six-week "beauty contest" in which the big Wall Street investment banks competed for a leading role in its wireless stock offering. As part of those presentations, investment banks routinely highlighted positive recommendations on the potential client's stock from their designated analyst.

The three firms that won the right to lead the AT&T offering were Salomon, a unit of Citigroup; Goldman, Sachs; and Merrill Lynch. The 360-million-share deal was the largest initial public offering in United States history at the time. Six months later, Mr. Grubman lowered his rating on AT&T shares.
Mr. Armstrong and Mr. Weill have had a close business relationship for at least nine years. In 1993, the Primerica Corporation, headed by Mr. Weill, acquired Travelers, on whose board Mr. Armstrong sat. As chairman and chief executive of the new Travelers Group, Mr. Weill retained Mr. Armstrong as a director.

Mr. Armstrong returned the favor. Less than a year after Mr. Armstrong became chairman and chief executive of AT&T in 1997, Mr. Weill joined AT&T's board. Mr. Armstrong remains a director of Citigroup, which was formed when Travelers merged with Citicorp in 1998.
At an AT&T board meeting in 1999, according to an executive who was there, Mr. Armstrong pulled Mr. Weill aside and asked him to tell Mr. Grubman to act "like a gentleman." While Mr. Armstrong acknowledged that Mr. Grubman was entitled to his view, he asked Mr. Weill to make sure the analyst did not attack the company or Mr. Armstrong.

"Jack was always saying that WorldCom was going to eat AT&T's lunch and that AT&T couldn't get out of its own way," this executive said. "He was very snide and, naturally, that got to Mike."
After Mr. Grubman shifted his stance on AT&T, he was admitted to the company's inner sanctum. On May 1, 2000, AT&T invited Mr. Grubman and another analyst, Frank J. Governali of Goldman, Sachs, to its Basking Ridge, N.J., headquarters and told them that the company would not meet its earnings projections for the year. AT&T did not tell other investors or analysts until the next day. Since then, the Securities and Exchange Commission has instituted rules forbidding companies from providing material information to favored analysts and investors ahead of others.
AT&T Is Asked For Information On Dealings With Salomon The New York Times August 24, 2002

In a statement to top executives late yesterday, Citigroup acknowledged the attempt by Mr. Weill, who was an AT&T director, to help Mr. Grubman's children get into the school but denied it was connected to the analyst's upgrade of AT&T's shares.
The circumstances surrounding Mr. Grubman's abrupt change in the fall of 1999 to an upbeat view on AT&T from a long-held negative one have come under intense scrutiny from investigators in the office of Eliot Spitzer, the New York attorney general, and NASD, formerly called the National Association of Securities Dealers. They are trying to assess whether research practices at the Salomon Smith Barney unit of Citigroup were corrupted by the firm's investment banking relationships, or desired relationships, with corporations. The e-mail message was among records Citigroup turned over in the investigations.

Central to the investigations is Mr. Grubman's upgrade of AT&T in November 1999. Soon afterward, Salomon reaped lucrative fees from an offering of shares in AT&T's wireless subsidiary, which was spun off to the public in April 2000.

Yesterday, Mr. Weill acknowledged publicly for the first time that he had urged Mr. Grubman in 1999 to "take a fresh look" at AT&T. In a statement, Mr. Weill said that his request of Mr. Grubman was not meant to be viewed as pressure on the analyst to upgrade AT&T, a company which Mr. Grubman rated a tepid "hold" at the time. Nevertheless, Mr. Grubman soon did raise his rating on AT&T to "buy." A few months later, in April 2000, Salomon won a coveted role selling shares in AT&T's wireless division to investors.

Alix Friedman, a spokeswoman for the 92nd Street Y, said that Citigroup made a grant of $1 million over five years to the organization in the early summer of 2000.
As for the e-mail message linking Mr. Grubman's upgrade of AT&T to his daughters' entry into the 92nd Street Y's nursery school, Mr. Weill said, "I tried to help Mr. Grubman because he was an important employee who had asked for my help." Mr. Weill said he called the school on behalf of Mr. Grubman's children but did not say when. He added that Citigroup's grant was consistent with the company's philanthropy, but he did not say whether the money was given to persuade the school to admit Mr. Grubman's children.

As the top executive of Citigroup, Mr. Weill presumably has much influence over the company's charitable contributions.
In the message, he said Mr. Weill had asked him to upgrade AT&T to gain the support of its top executive, C. Michael Armstrong, who was also a Citigroup director. The message said Mr. Weill sought Mr. Armstrong's help in a boardroom power struggle with John S. Reed, then co-head of Citigroup, who subsequently resigned. That statement was a fabrication, Mr. Grubman said yesterday, "to inflate my professional importance." And Mr. Weill called that part of the e-mail message "sheer nonsense," adding, "I would never attempt to manipulate a board member's vote."
Mr. Grubman had been known for his dim view on AT&T and shortly after the wireless offering was made to investors, he lowered his rating on the company once again to hold.
'Just take a fresh look' is 90's code for change your opinion," said Tom Brown, chief executive of and a former brokerage firm analyst. "At the investment banks in the 90's, everybody realized we were making money because of transactions. Whether it was your direct boss, the head of equity trading, head of investment banking or the C.E.O. of the firm, the type of pressure that was put on you was exactly what Sandy did."
But the existence of an e-mail message written by Mr. Grubman that disputes his claims of only writing research that he believed in may hurt his defense among the securities regulators who are considering taking action against him.
Wall St. and the Nursery School: A New York Story The New York Times November 14, 2002

Jack B. Grubman, the former Citigroup analyst, boasted in an e-mail message early last year that he and Sanford I. Weill, Citigroup's chairman, had played C. Michael Armstrong, the chief executive of AT&T, "like a fiddle," according to two people who have seen the message.

In the e-mail message, which Citigroup turned over to regulators investigating conflicts of interest at Wall Street firms, Mr. Grubman told a friend that he had temporarily raised his rating on AT&T's stock to accomplish two goals. One was to gain Mr. Armstrong's support in Mr. Weill's struggle for control of Citigroup; the other was to secure Mr. Weill's help in getting Mr. Grubman's children into an exclusive nursery school in Manhattan.

Once he and Mr. Weill got what they wanted, Mr. Grubman wrote, "I went back to my normal negative self" on AT&T and lowered his rating on AT&T stock. Mr. Armstrong, he added, "never knew that we both played him like a fiddle," said the people who have seen the e-mail message, parts of which have been reported over the last two days.
But investigators see the document as a confession by Mr. Grubman that he had fraudulently misled investors about his true opinion of AT&T's prospects.
Mr. Weill needed Mr. Armstrong's vote to "nuke" Mr. Reed in the showdown between the men for sole control of Citigroup, Mr. Grubman wrote, the people who have seen the e-mail message said. Mr. Reed resigned from Citigroup in February 2000.

Mr. Grubman wanted Mr. Weill's help in getting his twins into the nursery school run by the 92nd Street Y. He got that and more.

Mr. Weill, other directors of Citigroup and at least one other powerful person in business contacted directors of the 92nd Street Y seeking to help Mr. Grubman's children, said people involved in the investigation or close to members of the Y's board. Citigroup also followed up with a pledge to give $1 million to the Y over five years, starting in 2000.
A person involved in the investigation of Citigroup and Mr. Grubman said Citigroup officials would not deny that the company gave the money to the Y to get Mr. Grubman's children admitted to the nursery school.
More Details On Message By Ex-Analyst For Citigroup The New York Times November 15, 2002

"No child is guaranteed admission here," said Alix Friedman, director of public relations. "Every child -- every child -- goes through the same rigorous admissions process.
But heads of nurseries who do not bow to their fancy clientele have been known to lose their jobs.
No Talking Out of Preschool; Favoritism in Nursery School Entrance? No Comment The New York Times November 15, 2002

Investigators looking into Mr. Grubman's activities might have written off this claim as too far-fetched had they not also found a memo from Mr. Grubman to Mr. Weill dated Nov. 5, 1999, that was helpfully entitled: "AT&T and the 92 Street Y." The Pre-Kindergarten Connection The New York Times November 16, 2002

"It is odd that the money came from the bank," one major fund-raiser said. "If it had come from the bank's foundation, well, then you might be able to make a case that this was good citizenship. But from the company itself? That's funny."
"The one thing that just doesn't feel right, whether it violates any rules or principles, is that this was shareholders' money."
Mr. Grubman's seeking help with the school admissions was mentioned not only in the e-mail message to his friend but also in a memo he wrote to Mr. Weill, obtained by investigators looking into Mr. Grubman's stock ratings.
"Given that it's statistically easier to get into the Harvard freshman class than it is to get into preschool at the 92nd Street Y (by the way, this is a correct statement), it comes down to 'who you know,' " Mr. Grubman wrote.
Private Preschool Admissions: Grease and the City The New York Times November 16, 2002

But it differs too from some other dramas involving brokerage firm titans: thousands of individual investors lost millions of dollars because of what appear to have been self-interested actions by Mr. Grubman and Mr. Weill.
The fact is, Mr. Weill's request of Mr. Grubman draws him into the circle of people that investors can consider at least partly responsible for losses they incurred by following the analyst's advice. Between his upgrade of AT&T when the stock was at $57.43, and his downgrade, at $28.88, some $80 billion in market value vanished.
Bill Fleckenstein, president of Fleckenstein Capital in Seattle, said the incident showed "that it wasn't just the analysts and the corporate finance guys on Wall Street who would do whatever it took to make a buck. The C.E.O.'s did, too." But this was standard practice on Wall Street in the 90's, he noted. "The only reason we get to know about this is there was a paper trail," he said. And a doozy of a trail at that.
Does the Rot on Wall Street Reach Right to the Top? The New York Times November 17, 2002

While Mr. Weill has publicly acknowledged asking Mr. Grubman to take a fresh look at AT&T, documents released yesterday show that their discussions were intricate and numerous and dated as far back as the fall of 1998.

Mr. Weill accompanied Mr. Grubman to meetings with C. Michael Armstrong, then the chief executive of AT&T, and asked that Mr. Grubman's AT&T report be sent to him, before its publication, e-mail messages show.
When Mr. Grubman neglected to mention AT&T as an industry leader in a speech in October 1998, Mr. Armstrong complained to Mr. Weill, who relayed the complaint to Mr. Grubman's superiors.

"The last thing I want to do is have AT&T put in an awkward position in dealing with Salomon Smith Barney," Mr. Grubman wrote in a letter to Mr. Weill that was released yesterday. "To the extent I have done so I apologize to you and the firm."
In August 1999, Mr. Weill and Mr. Grubman met with Mr. Armstrong at AT&T's headquarters in New Jersey.

A few weeks later, Mr. Grubman wrote to Mr. Armstrong, with copies sent to Mr. Weill and Eduardo Mestre, the head of Smith Barney's investment banking division. "When my analysis is complete and if the results are in line with what you and I are expecting, there will be no better supporter than I," he said in the letter. "I would welcome the role of being a kitchen cabinet member to you."

In October, Mr. Weill and Mr. Grubman had a 14-minute conversation in which Mr. Weill asked him once again to take a fresh look at the stock. In November, Mr. Grubman sent a letter to Mr. Weill updating him on AT&T.

Throughout the month, Mr. Grubman and Mr. Weill had numerous conversations about progress on his work.

On Nov. 24, Mr. Grubman alerted Mr. Weill to his upgrade, and on Nov. 29 he sent an e-mail message to the publications department saying that "the AT&T report must be edited and mailed out to printers today so that it can be distributed in time to meet Sandy Weill's deadline."

The next day, Mr. Grubman issued his report of AT&T with a positive rating.

In February 2000, Salomon Smith Barney was named a book runner for AT&T's public offering of its wireless company, earning $63 million in fees. Citigroup's Chairman Is Barred From Direct Talks With Analysts The New York Times April 29, 2003

On June 11, 1999, Grubman sent Weill a memorandum noting that AT&T had not responded to his questionnaire. Weill apparently then spoke to AT&T's C.E.O. about the questionnaire. AT&T asked Grubman to resend the questionnaire, and Grubman wrote Weill: "Maybe this time we can actually make some progress in closing the deal with AT&T's C.E.O. ." On July 19, 1999, AT&T sent an 11-page response to Grubman.

On Aug. 5, 1999, Grubman and Weill traveled to AT&T's headquarters for a meeting with AT&T's C.E.O. that Weill had arranged. On Aug. 19, 1999, Grubman wrote to AT&T's C.E.O.:

"I am writing to follow up on our meeting with Sandy. . . . I thought it was important to write to you directly to lay out what I think we agreed to in order to get this process going. . . . I need to get to a level of specificity well beyond what's on the street today and I will need your help getting to the right people. . . . Wall Street is lacking analysis that comes remotely close to answering the detailed economic, technical and operational questions that investors are demanding answers to regarding the rollout of the bundled service platform using the cable plant. . . . When my analysis is complete and if the results are in line with what you and I are both anticipating, once I'm on board there will be no better supporter than I. . . . As I indicated to you at our meeting, I would welcome the role of being a 'kitchen cabinet' member to you."

He (Grubman in memo to Weill) referred to his earlier meeting with AT&T's C.E.O. and to his scheduled meetings in Denver with the head of AT&T's cable operations and in Basking Ridge in New Jersey with AT&T's network operations personnel. Grubman also sought Weill's assistance in getting his children admitted to the 92nd Street Y preschool. WALL STREET SETTLEMENT; Excerpts From Settlement With Citigroup on Salomon's Recommendations The New York Times April 29, 2003

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Benjamin Lorello and William McGahan

Lorello was the health care banker for Smith Barney. William McGahan was his right hand man responsible for HealthSouth. Lorello's Grubman-like dealings with HealthSouth are described in other pages on this site. Lorello had analysts working with him who gave positive reports. As in the case of Grubman a series of companies were hyped up to the public and floated on the stock market. Most of them imploded.

Indeed, McGahan who is known for belittling his employees and riding around the office on a Razor scooter counted HealthSouth as one of his top clients.
Lorello is a legend in the healthcare world. Known for being fiercely intense and aggressive, he has been known to put heavy pressure on small and mid-cap companies to do business with the bank.

"What always struck me as odd," said one healthcare executive, who asked not to be named, "was that he continued to have high market share even though his companies kept blowing up." UBS' OWN GRUBMAN The New York Post April 4, 2003

Behind every great corporate empire they say, lies a filthy-rich investment banker. For HealthSouth, that banker is Ben Lorello, a brash Wall Street kingpin. Though HealthSouth is most closely associated with its recently deposed CEO and founder, Richard Scrushy, Wall Street insiders say the long arm of Lorello held considerable sway over the company.

Lorello heads UBS Warburg's health-care investment banking group. Wall Streeters say he and his partner, who resigned suddenly on April 10, are the kinds of bankers who give bankers a bad name (that's saying something). In other words, they're fee-hungry, not particularly concerned about investors, and often ill-tempered. McGahan is known for his short fuse, Lorello for his insults (the latter was once overheard saying, in his gravelly monotone, "If you were a stock, I'd short you").
Lorello, who has been known to sport Master of the Universe attire, circa 1986 (dress shirts replete with French cuffs and English collars), came to UBS in 1999 for a reported three-year pay package worth $70 million. He and McGahan, who handled the day-to-day relationship with HealthSouth, helped it raise billions of capital, netting UBS millions in fees. Prior to that Lorello and McGahan worked to build HealthSouth deal by deal beginning in the mid-'80s, first at Smith Barney, then at Salomon Smith Barney.
In 1996, I interviewed Scrushy and Lorello and wrote of the latter that he "... is widely viewed as the premier health-care investment banker--as he'll be the first to tell you."
HealthSouth's Go-to Guy :The collapse of HealthSouth is putting pressure on UBS Warburg FORTUNE Tuesday, April 15, 2003

While Mr. Lorello, the primary banker for HealthSouth, is not the subject of an investigation, health care analysts at UBS Warburg have come under increased scrutiny for having maintained positive ratings on HealthSouth up to and after its stock collapsed last year. A spokeswoman for UBS Warburg declined to comment, as did the S.E.C. Analysts to Pay Millions in Fines New York Times April 28, 2003

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Charles O. Prince III

Prince was a lawyer who joined Weill early in his career and has been a faithful servant ever since. He became an excellent deal maker and arranged all of the many takeovers and mergers in which Weill indulged. Weill came to depend on him.

When scandals engulfed the company Weill turned to Mr Prince who proved to be a skilled Mr Fixit and a good negotiator, steering Citigroup through the scandals and the settlements which spared Weill.

After he fired Carpenter, Weill put Prince in charge of Salomon Smith Barney, the prime culprit in the scandals. When Weill retired in 2003 he anointed Prince as his successor, but elected to stay on as chairman where he could still exert influence.

Prince undoubtedly has a good grasp of the problems and insight into what happened. He is in a good position to guide the company towards a more ethical future.

The problem for Prince is that social consciousness and ethical behaviour do not make for success in the marketplace. If he is not prepared to do whatever it takes to be profitable then the market will replace him with someone who will. We can probably expect a short respite before the next Citigroup scandal.

The appointment (to replace Carpenter) of Charles O. Prince III, 52, who had been Citigroup's chief operating officer and chief legal counsel, comes after months of bad publicity for the investment bank, resulting in a decline in Citigroup's stock.
Mr. Prince has worked at Mr. Weill's side since 1987. He has helped the Citigroup chief executive in his dealings with the Federal Reserve and Congress, smoothing the way for the merger of Travelers and Citicorp in 1998 to create Citigroup.
Citigroup Moves to Clear Up Troubles at Investment Unit The New York Times September 10, 2002

CHARLES O. PRINCE III (who replaced Carpenter) is amused by his image as the chief problem solver at Citigroup.
He has met with state and federal regulators, hoping to devise a speedy solution to the multiple investigations into Salomon's business practices. Officials briefed on the meetings said Salomon offered a sweeping settlement proposal that could include separating its investment banking and research departments to avoid conflicts of interest.
The aggressive effort to repair the damage shows the imprint of Mr. Prince, a workaholic lawyer known for his sense of humor and, more important, his loyalty to Mr. Weill.
If Mr. Prince succeeds, analysts say, he could be Citigroup's next chief executive. If he fails, Mr. Prince said, with characteristic bluntness, "I'm out of a job."
Few executives at Citigroup are closer to Mr. Weill than Mr. Prince, 52, who had been Citigroup's chief operating officer and longtime chief legal counsel. Mr. Prince is part of a small circle of executives -- now even smaller after departures of other veteran aides in recent years -- who have been with Mr. Weill through his career of deal-making.

"Chuck has helped me on everything from my eating habits to my exercise regimen," Mr. Weill said in a recent interview.

They are occasional jogging partners, and Mr. Prince is the master of ceremonies at an annual birthday party that the company's top executives have for Mr. Weill.

The two men have known each other since 1986, when Mr. Prince, as general counsel of the Commercial Credit Company, then a troubled Baltimore finance company, prepared the employment contract for Mr. Weill, who became chief executive.

Mr. Weill used Commercial Credit as the base for a series of acquisitions, ultimately leading to the creation of Citigroup in 1998.

Although he now runs one of the country's biggest investment banks, Mr. Prince has roots that are far from the world of Wall Street.

Born and raised in Los Angeles, he received his bachelor's, law and master's in international relations degrees at the University of Southern California.

He had ambitions of working as a public interest lawyer, but instead took bland jobs as an in-house corporate lawyer, working for United States Steel and PPG Industries in Pittsburgh. Bored, he got a master's degree in corporate securities law at Georgetown University in Washington and in 1979 joined Commercial Credit in Baltimore.

A few years later, Mr. Prince, as general counsel, sold off much of Commercial Credit's assets after the company's parent, the Control Data Corporation, faced a cash squeeze.

AFTER Mr. Weill arrived, Mr. Prince stayed as chief counsel. Over the years, he helped negotiate acquisitions and deal swiftly with any problems, building his reputation as a troubleshooter.

When Mr. Weill's Travelers Group announced its merger with Citicorp in 1998 to form Citigroup, Mr. Prince met with members of Congress and regulators in Washington to smooth the way. Mr. Weill was eager for Congress to repeal the Glass-Steagall Act, the Depression-era legislation that prohibited banks from getting into some other businesses. The legislation, repealed three years ago thanks in part to Citigroup lobbying, would have required Citigroup to divest its insurance business.

This month, Mr. Prince laid the groundwork for a $215 million settlement of a Federal Trade Commission lawsuit against Associates First Capital, a consumer lending business acquired by Citigroup in 2000.

"He's an incredible problem solver," Mr. Weill said.

Others doubt that Mr. Prince can quickly move Citigroup past its present predicaments.
Mr. Prince's intensity in getting things done is no surprise to colleagues. "He is relentless in terms of his work habits," said Robert I. Lipp, another longtime aide to Mr. Weill who heads Travelers Property Casualty, which Citigroup spun off earlier this year. "If we are doing an acquisition, he'll often have a contract written overnight."

Still, Mr. Prince's new role at Citigroup is in some ways unfamiliar to him. He will need to broaden his network beyond regulators and lawmakers. He is little known on Wall Street or in business circles.

His long hours at Citigroup may have made it difficult. Mr. Prince, who is engaged to be married and has two grown children from a prior marriage, had been treasurer of the New York chapter of the National Urban League, but he gave up that job because of the demands of his Citigroup role. He did, however, recently become a member of the Council on Foreign Relations.
Mr. Prince said he felt up to running Salomon. "Sandy is the premier deal maker, and I was one of a handful of people who worked with him on every deal Citigroup has done," he said. "I know what doing a deal means."
Mr. Fix-It for the House of Salomon The New York Times September 29, 2002

The surprising decision (Prince to succeed Weill) underscores a persistent unease Mr. Weill seems to have with his investment bankers dating back more than 30 years.
Mr. Prince has emphasized that he will remain at the helm of the investment bank. In a meeting with managing directors yesterday, Mr. Prince said that he would be running the bank for another year, if not longer, according to a Citigroup banker who was present.

Already, a new generation of bankers in such areas as equities and fixed income are positioning themselves to succeed Mr. Prince as head of Citigroup's investment bank.
Though there is a widespread acceptance, if not resignation, that Mr. Prince will remain in charge for the near future, many Citigroup bankers are eagerly awaiting an executive with a keener understanding of the business. While the bankers say they have respect for Mr. Prince's knowledge of regulatory issues and credit his history as Mr. Weill's top legal adviser on all his major deals, they are less impressed with his nuts-and-bolts knowledge of their industry.

Describing a meeting Mr. Prince held a few weeks ago with about 400 Citigroup bankers, several who attended said Mr. Prince's remarks struck them as superficial.
Mr. Prince is not the only person lacking in direct banking experience who Mr. Weill has put in a senior position at the bank.
Succession at Citigroup May Start a Horse Race The New York Times July 18, 2003

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The New York Stock Exchange and Richard Grasso

The Board

The Board of the New York Stock Exchange (NYSE) has been made up largely of successful business men and women. It is not surprising that it too should show some of these tendencies and that some members have had to resign when their companies were caught up in scandal and fraud.

Michael Carpenter from Salomon Smith Barney was a member as was Martha Stewart who is charged with corporate crimes which could send her to jail for 30 years. Of particular interest is Richard Grasso who was chairman of the NYSE until he was forced to resign and was replaced by John Reed.

Particularly revealing of the way the board and the marketplace thinks was the nomination of Sandy Weill as a member of the board to represent the public. This was supported by Grasso.

Weill's Citigroup had just paid a large fine for allegedly defrauding the investing public. This same public was pursuing him and his company through the courts. The sordid dealings with Grubman had made headline news. Grasso had involved himself personally in the settlement so knew all about it.

There was an outcry and Weill sensibly withdrew. No one challenged the appointment of the CEO's and executives of Citigroup and many of the other financial groups involved in the scandals to the board. They were representing the industry and the industry had no problems with people like this. Many show characteristics little different to those at Citigroup.

One wonders how a board made up of people like these, a board where people like Weill can be considered as representatives of the public, can function as an effective regulator. The nomination of Neal, Purcell and Ketchum show who won the fraud war. The sense of impropriety which a civil society would feel about such appointments no longer applies. It is all about naked power and influence. Claims to "sweeping changes" are so much hot air while attitudes like this persist.

But at board meetings of the New York Stock Exchange, Mr. Weill would represent not Wall Street, where he has spent almost his entire career, but the investing public.

The exchange said yesterday that Mr. Weill, who turned 70 on Sunday, is a nominee to be one of 12 public members of its board. The chief executives of two other big financial services companies, Morgan Stanley and Merrill Lynch & Company, have been nominated to represent the securities industry. Until last year, the chairman of the Salomon Smith Barney securities unit of Citigroup represented the industry on the board.
The third director who left the board worked for Mr. Weill. Michael Carpenter ran Salomon Smith Barney until regulators started investigating it for its involvement in financing Enron and for conflicts of interest among its stock analysts. Salomon Smith Barney has agreed to pay $400 million in fines and other payments as part of a pending settlement of the investigation into analysts.

Mr. Carpenter was an industry representative on the exchange's board, as are Henry M. Paulson Jr., the chairman and chief executive of the Goldman Sachs Group, and John J. Mack, the chief executive of Credit Suisse First Boston.

David H. Komansky, the retiring chairman of Merrill Lynch, has been an industry director of the exchange for six years. His successor at Merrill, E. Stanley O'Neal, is among the industry nominees this year, as is Philip J. Purcell, the chairman and chief executive of Morgan Stanley. Citigroup's Weill Nominated As N.Y.S.E. Board Member The New York Times March 22, 2003

Sanford I. Weill withdrew his name from consideration to be a director of the New York Stock Exchange last night after Eliot Spitzer, the attorney general of New York, said he would "wage a vigorous battle" against the nomination.
But Mr. Spitzer said he was "apoplectic" when he read that Mr. Weill had been chosen to represent the investing public, not the securities industry. "To put Sandy Weill on the board of the exchange as the public's representative is a gross misjudgment and a violation of trust," Mr. Spitzer said in a telephone interview yesterday. "He is the chairman of the company that is paying perhaps the largest fine in history for perpetrating one of the biggest frauds on the investing public. For him to be proposed as the voice for the public interest is an outrage."
Weill Declines Board Seat On N.Y.S.E. The New York Times March 24, 2003

The management crisis at the New York Stock Exchange (leading to Grasso's resignation) has raised long-dormant questions about whether the exchange can continue to be a regulator and presents a major challenge for the Securities and Exchange Commission.
That change will test the regulatory mettle of the commission's new leader, William H. Donaldson. Mr. Donaldson, who helped topple Richard A. Grasso and anoint his interim successor, is now moving gingerly in the debate over the exchange's future structure.

Publicly, Mr. Donaldson has given the exchange time to try to fix its own problems, and he pledged this week to wait a few weeks to hear proposals from the exchange and its interim leader.

But behind the scenes, Mr. Donaldson is said to have played a bigger role. He has, for instance, vetoed some candidates to become interim leader of the exchange. That job was given last week to John S. Reed, the former head of Citigroup, whose selection Mr. Donaldson approved.
It was Mr. Donaldson, though, who called for a detailed report on Mr. Grasso's pay, which led to further public disclosures and his resignation.

With the exchange's old leadership swept away, signs are emerging that the exchange is shedding a deep-seated resistance to realigning its nearly 70-year-old system under which the same officials at the exchange oversee both its regulation and its business affairs.

Edward A. Kwalwasser, who oversees the exchange's regulatory unit, defended the track record of his unit and said the changes being proposed would be more costly and possibly less efficient.

"But it wouldn't be the end of the world," he said in an interview a few hours before Mr. McCall's announcement, making a concession that would have been unthinkable under Mr. Grasso. Growing S.E.C. Role In Big Board Reform The New York Times September 26, 2003

The New York Stock Exchange is expected to name Richard Ketchum, general counsel of Citigroup Inc's (C.N) investment bank, to the new role of chief regulatory officer, the Wall Street Journal said on Wednesday.
The exchange was rocked this fall by the ouster of former Chairman Richard Grasso over the size of his pay package. The exchange installed sweeping changes, such as forming a new, independent board, splitting the roles of chairman and chief executive officer and proposing the creation of the chief regulatory officer position.
NYSE to name Citigroup's Ketchum as chief regulator-WSJ Reuters News January 7, 2004

I have not gone looking to see how many members of the board have been involved in fraud and unsavoury conduct. We know that Citigroup and several of the other financial giants involved in the scandals were well represented on the board and some have been nominated since the scandal broke.

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Martha Stewart

I have not tracked back to see how many representatives there were from Enron, Worldcom or other companies that committed fraud but it is likely that these companies were represented. A case currently drawing attention is that of Martha Stewart, an icon of the domestic scene who is charged with a corporate fraud which could earn her 30 years in prison.

From the apple pie on the dinner table to the dishes, cutlery and placemats, she has made an indelible mark on the lifestyles of millions of with her multi-media empire of books, magazines and television that espouses cooking, decorating and gardening. Americansd have made her a billionairess - - -
But this month the icon faces the ultimate fall from grace when she is tried as a corporate criminal in Manhattan Federal Court.

In a series of charges that could put her in jail for 30 years, Stewart is accused of an elaborate cover up that relates to an insider trading scandal that has already claimed the scalp of family friend Sam Waksal (CEO of ImClone systems which imploded in a fraud scandal)
That information. (that Waksal was dumping ImClone stock) it is alleged led Steweart to follow suit and sell her holding of 3928 shares in a transaction that netted her US $228,000.
She has been forced to step down from her executive roles at the company that grew from her home kitchen in Connecticut and resign from the New York Stock Exchange board.
Counted among "America's 25 most influential people" by Time magazine in 1996, Stewart has a reputation as a quick-tempered perfectionist, attributes that were fostered in an early career as a Wall St stockbroker.
So much to lose for such a paltry gain. The Courier Mail January 2, 2004

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Richard Grasso

Grasso has been chairman of the NYSE board since 1995. While he was enormously successful in building the board he became an arrogant and dominating force bending the system to his own needs and ideas. He became extremely powerful and rewarded himself lavishly. It was he who pressured regulators into a far less than adequate settlement of the financial scandals of the 21st century

He was replaced by Mr Reed who ran Citicorp when it was engaged in money laundering and when it was thumbing its nose at regulators. One must ask how much will really change?

Richard Grasso, chairman of the Big Board since 1995, finds himself at the center of what is fast becoming Wall Street's latest maelstrom. Once known for his dexterous marketing and political skills, Mr. Grasso first caught flak for clumsily allowing the nomination of Sanford Weill, Citigroup's chairman, to the exchange's board. Mr. Weill, who featured prominently in that bank's tainted-research case, had to withdraw his nomination in reaction to the public outcry.

Mr. Grasso is also being criticized, and rightly so, for serving on the board of Home Depot. The fact that one of that retailer's co-founders serves as a director of the stock exchange brings to mind all that is wrong about corporate America's cozy, interlocking boardrooms. But the larger point is that Mr. Grasso, who clearly likes to be thought of as a corporate reformer and a zealous regulator, has no business moonlighting as a director of any company listed on the exchange.

It is not as if he needs the money. Mr. Grasso was paid $10 million last year, an exorbitant sum to lead a not-for-profit, quasiregulatory body, especially during a bear market. It does not help matters that some of the Big Board directors to whom Mr. Grasso reports, and who set his salary, are the very people he is charged with regulating: leaders of big Wall Street firms and specialist trading houses.

That is one of the inherent tensions in what the law calls a private "self-regulatory organization." The exchange essentially polices its own owner-members, as is the case with its inquiry into allegations of illegal trading by the specialists who control the matching of buyers and sellers for individual stocks.

William Donaldson, the Securities and Exchange Commission chairman who ran the stock exchange in the early 1990's, has begun a review of how various self-regulatory groups govern themselves. We can think of a good place for him to start. More Conflicts on Wall Street The New York Times May 14, 2003

The departure last week of Mr. Grasso after the disclosure that some board members had been in the dark about his compensation package has revived the issue.

Mr. Grasso had long opposed any changes to the regulatory structure of the exchange. Mr. Reed has not disclosed his views on the issue, but is described by advisers as being interested in making significant changes in the way the exchange governs itself. Growing S.E.C. Role In Big Board Reform The New York Times September 26, 2003

The American Stock Exchange, which was closest to the World Trade Center, was having the greatest difficulty getting up and running. It was viewed as imperative that all the exchanges open simultaneously.

But one key executive -- Richard A. Grasso, the chairman of the New York Stock Exchange -- was conspicuously absent during the calls, said Meyer S. Frucher, chairman of the Philadelphia Stock Exchange, who took part in all the discussions. "Not only did Grasso never come on the phone to be part of that collegial network to get things up and going," he said, "a significant portion of the time, nobody from the New York Stock Exchange came on the phone."

Then, on Sept. 15, two days before the exchanges reopened, he continued, the group learned that the New York Stock Exchange would open a few minutes later than usual. The reason: Mr. Grasso wanted to have two minutes of silence starting at 9:30, followed by a singing of "God Bless America."

As a result, the various exchanges that trade put and call options on both Nasdaq and the Big Board would be forced to have a staggered opening, threatening already fragile trading systems. Executives from the other exchanges objected and argued strenuously for a simultaneous opening. But it was not to be.

When the Big Board opened for trading that day, TV viewers around the world watched Mr. Grasso, first with his head bowed, then joining the floor in "God Bless America."

"Like Robert Moses and Lyndon Johnson before him, Dick Grasso was a master at using all the levers of power available to him," Mr. Frucher said. "That generates awe and respect, but also resentment."

The controversy over Mr. Grasso's $140 million pay package may have been the main impetus for his ouster last month. But the seeds of his downfall appear to have been planted long before his compensation ever became public.

Toward the end of his career, Mr. Grasso seemed to consider himself bigger than the institution he ran, leading to a series of missteps that attracted the scrutiny of the Big Board's secretive practices, according to more than a dozen people who worked with him and competed with him over the years.

At the same time, he failed to recognize that the culture outside the exchange was changing and that practices with even the appearance of a conflict of interest, like sitting on the board of a listed company, no longer passed muster.

Because of his inability to modify his methods, the 211-year-old institution he ran so ably now faces the prospect of a complete overhaul. His abrupt departure has created a leadership vacuum, paving the way for continued chaos at the exchange. Its regulatory arm is scrambling to appear tough, and the trading floor is polarized.

Whoever leads the Big Board next is unlikely to take his cue from Mr. Grasso, who managed through intimidation and an old-fashioned favors system that resembles the dealings of a 19th-century ward boss more than it does the practices of a modern chief executive. Former colleagues said he required the executives of every department to report to him, guaranteeing that he alone knew what was happening throughout the exchange. He wielded the exchange's regulatory unit like a weapon, some of these people said, instilling fear in the members and the workers.

For example, a few years ago Mr. Grasso even became involved in a hiring matter with a specialist firm, threatening to block an acquisition the firm had planned if one of his loyalists was not brought on board in the merger. And the invitations to join the exchange's board that he extended to executives -- like the appointment of Sanford I. Weill, chairman of Citigroup, earlier this year, which backfired badly -- were in many cases strategic, a way to trade favors to try to benefit the exchange and also himself.

There is no denying that Mr. Grasso's methods resulted in great success for the exchange during his 35 years there. Since he rose to chairman in 1995, the Big Board increased its market share of the nation's stock trading from 70 percent to 90 percent. More than half of the companies whose shares trade on the exchange listed them there during Mr. Grasso's years as chairman. And the value of an exchange seat has almost tripled since he took the helm.

EQUALLY important, the Big Board became an American icon during Mr. Grasso's tenure, a symbol of the kind of capitalism that can produce wealth for everyone, not just the high-born.

"No one could articulate the whole concept of the exchange to the outside world better," said one high-level trader who has worked with Mr. Grasso for the past 10 years. "He knew every single nuance of the place from who opened the front door in the morning to who was testifying before the S.E.C. The job was well done. The real issue is whether or not he continued to represent the members or if he had a different agenda."

Even now, one month after Mr. Grasso's hasty exit, many of those who knew him and worked with him remain bewildered by his fall. How could a man who became a national hero after the terrorist attacks of 2001 and who was known around the world as the President of Capitalism flame out so spectacularly?
But privately, and unanimously, these people describe Mr. Grasso as a man who rose to the heights of American business by sheer dint of hard work.

Once he had cemented his power, however, he managed the exchange ruthlessly, and his critics came to believe that the benefits of his work increasingly were accruing to him rather than to the institution. The mid-September news of Mr. Grasso's pay was the last straw to exchange insiders who had long suspected that he was putting his interests ahead of theirs.

"Dick gave his life and soul to the exchange, and no one has questioned his effort, tenacity and success," said James Rothenberg, a securities lawyer in Manhattan and an exchange member. "The issue is, whether it is reasonable for a regulator to get that much compensation."
As Mr. Grasso climbed the ladder at the Big Board from his first job as a clerk in the listings department, he mastered the intricacies of an operation that was run more like a club than a corporation. He didn't make the institution that way, but he also did not move quickly to change it.

By all accounts, no one was better at persuading companies to list their shares on the exchange. He was a showman who could get out in front of a company and inspire great confidence. He was passionate about the exchange -- and it showed.
In return, former colleagues said, he would not hesitate to insert himself into the regulatory process and even into his member firms' operations to achieve his ends. "As his years as chairman went on, he ruled the place as his," said one longtime floor trader. "But different rules at different times seemed to be the order of the day. Grasso rules."
Suddenly, word came down from on high at the exchange that stocks could be reassigned (previously forbidden) if a specialist's market share of the trading fell precipitously. "Specialists came under pressure to up their market share," recalled the trader. "And that meant dealing more than they should. Then we learned that Grasso's bonus was contingent on maintaining market share. I went ballistic."

Mr. Grasso's determination to preserve market share may also have been behind his ill-conceived decision last spring to invite Mr. Weill of Citigroup to join the exchange's board as a representative of the public.
According to one person involved in the Weill nomination and a regulatory official briefed on it, Mr. Grasso was warned that it could generate bad publicity. But he insisted on the nomination, arguing that it was of strategic importance for the exchange and could be a way to keep Mr. Weill from moving his firm's huge stock-trading business away from the exchange to an alternative trading system.
WHILE William H. Donaldson, who once ran the exchange and now heads the S.E.C., and other former exchange chairmen delegated authority to subordinates, Mr. Grasso kept control of all aspects of the business by making every unit report to him, former colleagues said. "The board and committee structure at the exchange was fragmented," said a former official at a specialist firm. "And there was only one guy who knew everything that was going on, and it was Dick."

One example of Mr. Grasso's hands-on approach was his tendency to invite employees for walks around the block to work out disputes in private tete-a-tetes. On these occasions, his security guards followed a few steps behind.
Because the Big Board chairman was both regulator and salesman, Mr. Grasso may have considered it well within his purview to get involved in regulatory matters. Moreover, such meddling did not begin with Mr. Grasso, according to some of his former colleagues. For decades, executives at the exchange have used the regulatory unit to keep people in line, these people said.

Yet on one occasion in 1997, officials at competing stock exchanges told the S.E.C. that the Big Board under Mr. Grasso was using its regulatory unit improperly, putting heightened scrutiny on members that traded listed stocks on the competing exchanges. Commission officials sent the Big Board a letter warning it to conduct its inspections objectively.
According to one of the working group's (to review regulation) members, the officials met each week for a year and a half, analyzing whether there was merit in eliminating regulatory duplication. The group asked the two largest self-regulatory organizations for data on what their regulatory units cost. While the National Association of Securities Dealers provided all the information it asked for, the New York Stock Exchange stonewalled.
But in early 2000, the project was quietly dropped. Members of the working group were never told why, but one who spoke on condition of anonymity said that Mr. Grasso was angered by the project and that the S.I.A. decided to shelve it because of his opposition to the working group's conclusion.
Mr. Grasso's iron-fisted management style may have helped stave off threats to the trading floor's immensely profitable status quo in the short run. But it carried a high cost.
"You knew he was working hard; you knew he had the interests of the institution at heart," Mr. Morris said of Mr. Grasso's tenure. "He was the closest thing to an irreplaceable person that an institution could have. I can't see anybody filling his shoes."

That, of course, may be the point: that one person should not try to control the disparate and at times conflicting operations at the exchange.
The message could not be clearer: The New York Stock Exchange is under new management, and the autocratic methods favored by Mr. Grasso will no longer be tolerated.
The Fall of a Wall Street Ward Boss The New York Times October 19, 2003

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Corporate Lobbying and Politics

Probably the strongest situation where conflicts of interest exist and are exploited for personal and corporate gain is that of industry lobbyists. They alternate between being members of government responsible for making laws and regulating the market, to being lobbyists for corporate groups wanting to pass laws or defeat proposed laws affecting the market.

Working within government for a relatively modest salary gives them inside knowledge, the contacts and influence. This allows them to demand large fees when they resign and become lobbyists. This has become a revolving door.

Nicholas Calio and Thomas Scully

Lobbyists like Thomas Scully (previous head of the Federation of American Health Systems representing and lobbying for corporate medicine) and Nicholas E. Calio who is now lobbying for Citigroup (see extracts) move freely between stints of employment by government as regulators and advisers, to being lobbyists for the corporations they were regulating.

Mr. Scully resigned on Monday as administrator of the Centers for Medicare and Medicaid Services, part of the Health and Human Services Department that provides health insurance to more than 75 million people.
Mr. Scully was the object of a bidding war by law firms and equity investment concerns. Mr. Johnson said Mr. Scully would be allowed to work for an investment firm while a partner at Alston & Bird.
In May, before either house of Congress had passed the Medicare bill, Health and Human Services Secretary Tommy G. Thompson approved a waiver to exempt Mr. Scully from certain parts of the federal ethics law. The waiver let him negotiate with potential employers while he helped write the Medicare law.
A summary of Health and Human Services Department ethics rules says employees who have begun seeking private work must immediately recuse themselves from "any official matter" that involves the prospective employer.
Medicare Chief Joins Firm With Health Clients New York Times December 19, 2003

Not buying the car for his son was one of many financial sacrifices that Mr. Calio apparently made over the last two years of government service. Last week Mr. Calio resigned from his position to become chief lobbyist for Citigroup.

What was refreshing about his announcement was its honesty. Instead of the time-honored Washington excuse that he was leaving to spend more time with his family, Mr. Calio informed the president and the news media that he also wanted to make more money.

"My reasons for leaving come simply to the two F's," he wrote to President Bush. "Family and financial." He was even more blunt in speaking to the press. "I can't pay my bills," he told reporters.

It might seem churlish to complain about a government job that pays $145,000 a year, but Mr. Calio, a former lobbyist who favors monogrammed French-cuffed shirts, is accustomed to making many times that. During the day he can sometimes be spotted at the Caucus Room, a Washington steakhouse that caters to lobbyists and members of Congress and in which he is an investor. At his $1.5 million home in Chevy Chase, Md., he is known to enjoy relaxing with wines from his private cellar.

As one of Washington's premier lobbyists before joining the Bush administration, this life was easy to sustain. As a Bush staffer, it became impossible. As his family's only wage earner, he said, he faced paying tuition for two children in college and another in private school.
As happens in every administration at mid-tenure, staffers in the Bush White House are trading in their government jobs for high-paying corporate ones. For Mr. Calio, this is only his latest trip through the revolving door. In the late 80's, he lobbied for the National Association of Wholesaler-Distributors, a powerful business group aligned with the Republicans. That job brought him to the attention of the first Bush administration, and he was hired in 1989 as President George H. W. Bush's deputy assistant for legislative affairs. After two years, he returned to a lobbying firm on K Street, but rejoined the White House in 1992 as the legislative affairs director.

After Bill Clinton's victory he and Lawrence F. O'Brien III, a Carter administration official, founded a boutique lobbying firm that was billing about $3 million a year by the end of the 1990's. In 2000, his last year on K Street before joining the new Bush administration, Mr. Calio's income was $947,671, according to his financial disclosure form. That means he took an 85 percent pay cut to work in the White House.
For career Washington lobbyists, a brief government stint can be a high-return investment; it enables them to refresh their contacts and gain a glimpse of how their clients' issues are viewed from inside the bureaucracy. Mr. Calio suggested that experience as a lobbyist is ideal for a government employee and objected to the phrase "revolving door."

"I think that's a silly criticism," he said. "What do you want? People going into government who know nothing about it? You need people going in who know the issues."

In 1998, according to federal records, Mr. Calio lobbied on behalf of Arthur Andersen (and see also). This year, he helped negotiate the legislation that rewrote the rules for the accounting industry.

In 1999, Mr. Calio lobbied for Atlantic Richfield, the oil company. As a Bush official, he pushed an energy bill favored by the oil industry.
BUT as President Bush's chief liaison with Congress, Mr. Calio surely had one of the most resume-enhancing positions a private-sector lobbyist could have.

"It's almost like he came back for a refresher course before he headed back to the private sector," said William Allison at the nonpartisan Center for Public Integrity. The Nation: Revolving Doors; Scraping By on $145,000 a Year The New York Times December 22, 2002

The most influential adviser of the five leaving the administration is Nicholas E. Calio, President Bush's liaison to Congress. Mr. Calio, who is to become chief lobbyist for Citigroup, is close to the president and Senator Trent Lott of Mississippi, the former majority leader who was efficiently jettisoned by the White House last month after Mr. Lott made remarks widely attacked as racist and damaging to the president and the party. The President's Team Changes Some Players The New York Times January 5, 2003

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Robert E. Rubin

Rubin was another person who combined politics and business. He was given a special dispensation by Citigroup so that he could be employed by Citigroup as an adviser at the same time as play a political role in government and international relations.

A Democrat he played an interesting role as both adviser to politicians and agent for Citigroup. His activities illustrate the close links between politics and big business and the major role which business plays in formulating government policy.

Previously CEO of Goldman Sachs, he was a man of immense intellect on whom Weill depended for advice. He consistently rejected offers and suggestions that he might succeed Weill at Citigroup. He may well be among the more reflective and balanced people at Citigroup but he has put himself in a position where he has to negotiate many conflicts of interest.

Plenty of government officials retire to the private sector to make their fortunes. Plenty of business executives venture into politics seeking power and influence. Robert E. Rubin is doing both.

Citigroup gives him a salary, bonus and stock options valued around $40 million a year to advise on strategy, which he does in an imposing Park Avenue office next to that of Sanford I. Weill, the company's chairman and chief executive.

But, as a former Treasury secretary, Mr. Rubin has not abandoned his role as a globe-traveling statesman. He advises the Senate majority leader, Tom Daschle, on economic policy. He was a sounding board for Gov. Gray Davis of California during last summer's electricity crisis even as Citigroup worked for energy companies that were selling power to the state. He debates bank reform with Prime Minister Zhu Rongji of China while trying to drum up business there for Citigroup.

He called the Treasury Department last fall to see if there was anything the Bush administration could do to save Enron, a major Citigroup borrower and client. He spoke as a banker, and also as a former Treasury chief concerned about the risks to the markets.
Mr. Rubin, 63, likes multitasking. He drafted an op-ed article opposing the Bush administration's tax cuts last year while attending a Ford Motor board meeting. In the stock market-fueled exuberance of the 90's, he was a master of Wall Street who became the economic conscience of the Clinton administration -- and he is not prepared to give up either role.

"One reason I wanted to come to Citibank," he said in an interview, "is that being immersed in what is going on -- the financial issues, the economic issues -- would keep me current in a way that would make me better equipped to be useful in public policy. It puts me more at the center of things."
Mr. Rubin -- who carries the title at Citigroup of chairman of the executive committee -- masks an overpowering intellect behind verbal modesty, hedging his views with a courtier's self-effacement ("Maybe I'm wrong," and "this is just my opinion, for what it is worth," or "this could be a bad idea") in a way that disarms bosses and opponents.

His understated demeanor served him well in his 26 years at the investment bank Goldman, Sachs, where he rose from running the arbitrage desk to chief executive. It also made him stand out amid the clashing egos of Washington.
At a welcome-back-to-New York cocktail party, Mr. Weill learned that Mr. Rubin was considering a return to Wall Street. The Citigroup chief called him every day for the next 30 days. He eventually agreed, with one big condition: "I actually have a provision in my contract that provides for me to have my own role in public policy."

When a reporter described him as "interested" in public policy, Mr. Rubin interjected a crisp correction. "Involved," he said. "I am involved in public policy."

In early 2000, Mr. Rubin delayed a business trip to China when Al Gore delivered a campaign speech on economics in Cleveland, and wanted him at his side.

In a year-plus of the Bush administration, his involvement has only intensified as he perceives a threat to the Clinton legacy of fiscal discipline. Seen by some as the wise man of his party, he runs a nonstop tutorial on economic policy, coaching Senator Daschle and other leaders on ways to debunk Bush military spending and tax cuts.

Bush administration officials, by contrast, view him as a nagging antagonist, preaching the 90's virtues of budget discipline and low interest rates when they are fighting war and recession.
At least sometimes, Mr. Rubin's two roles overlap -- or collide. When California grappled with an acute shortage of electricity in 2000, Governor Davis, a Democrat, sought his counsel. Here, though, the conflicts were obvious. Mr. Rubin had Citigroup bankers check with clients -- the company had relationships with energy traders like Enron that were profiting from the crisis -- before advising Mr. Davis. His colleagues raised no objections. But after a few phone calls with Mr. Davis, Mr. Rubin pulled back, annoyed that the governor had cited him to lend credibility to the state's aggressive tactics against power generators.
His ties are even stronger with some foreign leaders, including Prime Minister Zhu of China. The two bonded during intense policy debates in the 90's, when Mr. Zhu was overhauling a state-dominated economy and Mr. Rubin was trying to contain the Asian financial crisis. "Zhu is not very patient if he thinks you are not ready to be substantively engaged," Mr. Rubin says.

The Chinese are fond of meeting corporate leaders, but they are especially fond of Mr. Rubin. Mr. Rubin once visited Beijing to find that the prime minister had traveled to the remote city of Urumqi. Mr. Zhu provided a military plane to fetch him. As hosts of last fall's Asia Pacific Economic Cooperation forum, the Chinese pointedly invited Mr. Rubin to introduce President Bush -- an "old friend" presenting a president still untested in Chinese eyes.

Yet Mr. Rubin mixes discussions about the Chinese banks and state enterprises with a pitch for Citigroup experts. "I think he would be astonished if I were meeting with him and didn't raise whatever our particular concerns were," he said.

Mr. Rubin's peers say he has the judgment to navigate smoothly between his two worlds. But the call regarding Enron illustrates that even he can steer astray. "Bob is no longer in the public sector and had the right and every reason to call," said his friend Felix G. Rohatyn, the financier. "It's delicate -- the impression is not great when it is on behalf of a company that has created the worst profile in the history of capitalism." ENRON'S MANY STRANDS: DUAL ROLE; Rubin Relishes Role of Banker As Public Man The New York Times February 11, 2002

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