Scarcely a week goes by without Citigroup finding itself in the
middle of some financial scandal. As the biggest company in what is
now regarded as a very dirty business, it’s no surprise that its
fingerprints are at the scene of every crime. Nevertheless, the
company (along with the rest of Wall Street) continues to exhibit
that deer-in-the-headlights look at being exposed and generally
acting as if nothing were wrong.
On Monday, Salomon Smith Barney, a Citigroup subsidiary,
admitted to Congress that it directed shares of hot initial public
offerings to executives of WorldCom, one of its biggest corporate
clients. I found this a rather stunning admission, not so much that
SSB did this (the dirtiness of the IPO business has been common
knowledge for years) as that it fessed up. Citigroup was nice
enough to post its response, a letter from Jane C. Sherburne, one
of its lawyers, on its website.
It is probably no coincidence that Sherburne, with years of
scandal-related experience in the counsel office of the Clinton
White House, would draw an assignment no one else wanted to touch
with long tongs.
The letter itself was a disappointment. Although Citigroup
admitted that it allocated shares on a preferential basis to
WorldCom executives — it could hardly avoid it because the House
Committee subpoenaed documents proving it — it strained to place
the practice in “context,” all the time emphasizing its recognition
of “evolving standards” and its “leadership role” in maintaining
public confidence in the markets.
Taking the simple expedient of posing as a member of Citigroup’s
janitorial staff and looting Jane Sherburne’s wastebasket, I can
provide you with the more enlightening first draft of this letter.
(My action will also, no doubt, lead Citigroup to evolve its
standards for checking the ID’s of its custodial crew and help it
maintain its leadership role in providing burn bags outside the
offices of all corporate counsel.)
Dear Chairman Oxley and Ranking Member LaFalce:
Enclosed please find documents responsive to the Committee on
Financial Services’ subpoena to Citigroup dated August 14, 2002. I
apologize that this letter has not come to you over the signature
of Sanford Weill, Citigroup’s Chief Executive Officer.
Unfortunately, the response to the subpoena is due and, not only is
the office empty but the lights don’t seem to be working
either.
While we believe that Salomon Smith Barney has always allocated
IPO shares in accordance with applicable regulatory standards and
industry practice, we also understand that regulatory standards are
evolving. As they continue to evolve from “crooked” to “honest,” we
will continue to take a leadership role in maintaining public
confidence in the markets. In fact, we would demonstrate our
commitment to underwriting honest initial public offerings if we
could just get some IPO business. (If you know of any companies
interested in selling securities to the public, we could offer a
substantial finders fee. Unfortunately, due to these evolving
standards, we can’t offer it in the form of preferential
allocations of IPO shares. But, as you can see from our board of
directors composition — with a former Treasury secretary, the
successor at Alcoa of the current Treasury secretary, and a former
President as an “honorary board member” [even we don’t know what
this means, other than it put Jerry Ford on our payroll]- we know
how to take care of helpful members of the government.)
In addition to providing the enclosed spreadsheet detailing the
dates, share amounts, companies, and profits received by WorldCom
executives from SSB, let me make four points providing a context
for this information.
First, the allocations made by the old institutional firm,
Salomon Brothers, prior to its acquisition by Travelers in November
1997 with Travelers’ retail firm, Smith Barney, differed
substantially from those made by the new firm, SSB. I hope you will
also remember that the nasty Long-Term Capital Management crisis
was also the work of some former Salomon traders. I think they also
had a hand in Watergate, but that’s just second-hand
information.
Second, after November 1997, the allocations given to those
WorldCom executives (and the executives of a lot of other
companies, but you haven’t asked about them yet) went down. Partly,
this was the result of Citigroup’s current management taking over
these operations and cleaning them up. We acknowledge that part of
it may have been the result of the dot-com boom creating an
ever-longer list of executives to whom we had to provide
“favors.”
Third, the allocation of IPO shares to executives of companies
that provided Citigroup with business replaced the previous, more
odious practice of providing those same executives with
prostitutes. Until now, there have been no laws regarding IPO
allocations. In contrast, prostitution has been illegal and
adultery (most of those executives were married) has been
considered a sin. If you condemn us for corrupting the IPO process,
I hope you will at least commend us for cleaning up the prostitute
process. And don’t even ask what we have to give these guys
nowadays to get business, since we can’t give them IPO shares.
Fourth, neither research analysts nor investment bankers are
responsible for the allocation of IPO shares to customers. As
reflected in the documents we are providing to you today, we have
located very few documents that even connect former employee Jack
Grubman, both an analyst and investment banker at SSB, to IPO
allocations to these investors. And I’m fairly certain none of the
documents we shredded in the last sixty days tied Grubman to these
allocations.
I hope this provides the proper context for the attached list of
IPO allocations to former officers of WorldCom. As new revelations
come to the attention of the media and Congress, Citigroup will
continue to develop new standards of conduct.
Sincerely yours,
Jane C. Sherburne
P.S. Disregard anything you hear about Citigroup financing a
plot to assassinate Argentina’s finance minister.
