Here are profiles of the three principal players in the WorldCom-Citigroup story -- Jack Grubman, Bernie Ebbers, and Sandy Weill -- whose interconnected relationships have come to symbolize the conflicts of interest that pervaded Wall Street in the 1990s.

During the bull market of the 1990s, Salomon Smith Barney telecom analyst Jack Grubman was notorious for blurring the traditional "Chinese wall" that was supposed to insulate analysts from investment banking departments so they could maintain their objectivity. "What used to be a conflict has now become a synergy," he famously told Business Week in 2000. "The notion that keeping your distance makes you more objective is absurd," he continued. "Objective? The other word for it is uninformed."

As investors rode the telecom boom of the 1990s, Grubman was celebrated for his close ties to corporate managers. However, when the bull market turned bearish -- and Grubman continued to urge investors to accumulate telecom stocks -- many observers came to question his motivations. Could an analyst -- so intimately tied to corporate management that he had attended board meetings of several companies whose stocks he covered -- provide credible independent advice to investors?

A math and marketing whiz, Grubman started his career at AT&T in 1977, where he performed strategic planning and economic analysis of demand in long-distance business. He discovered a mathematical flaw in AT&T's celebrated computer economic-modeling system, and with his trademark tenaciousness he convinced the company to stop using it.

In 1985, Grubman moved to PaineWebber, where his experience at AT&T proved to be a tremendous asset in covering telecoms -- he knew the industry players and could get access to critical information. At PaineWebber, where he made nearly $1 million per year, Grubman was known for working long days and weekends. It was at PaineWebber that Grubman first met Bernie Ebbers of WorldCom.

Ebbers' strategy of building WorldCom through acquiring regional rivals closely resembled Grubman's telecom thesis, in which he argued that younger start-up firms could outperform the industry giants by growing to meet what was expected to be an explosive demand for networking infrastructure. Grubman served as an advisor to Ebbers and WorldCom as the company executed larger and larger deals -- bringing large fees to Salomon Smith Barney, which underwrote many of the transactions. Grubman advised WorldCom on its 1996 acquisition of MFS Communications, as well as its 1997 merger with MCI, for which Salomon earned $7.5 million and $32.5 million respectively.

But critics say that the money flowed in both directions. According to a lawsuit filed by former Salomon Smith Barney broker David Chacon, Grubman guided a strategy in which his favored telecom clients would receive shares in hot initial public offerings (IPOs) in order to win their banking business. The clients would make a windfall on the IPO allocations, which typically soared in price on the first day of trading.

As the telecom bubble burst, and with various telecoms engulfed in scandal, Grubman found himself increasingly under fire from investors -- and under the microscope of regulators, including the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and New York State Attorney General Eliot Spitzer. Called to testify before Congress about WorldCom's bankruptcy in July 2002, Grubman defended his research, saying he had believed in WorldCom until the company first revealed its accounting problems. In August 2002, Grubman resigned from Salomon Smith Barney saying that it was impossible to do his job under a cloud of suspicion. Grubman received a $30 million severance package and Salomon Smith Barney agreed to continue to pay his legal bills.

It was after Grubman resigned that he became caught up in another firestorm -- this time over his November 1999 upgrade of AT&T stock from a "neutral" to a "buy." Grubman had traditionally been bearish on his former employer, but his boss, Citigroup CEO Sandy Weill, asked him to "take a fresh look" at the stock. Weill was a friend of AT&T Chairman Michael Armstrong, and each man sat on the board of directors of the other's company.

Shortly after Grubman upgraded AT&T, the company announced it was spinning off its wireless division, in what would become the largest IPO in Wall Street history. Salomon Smith Barney was chosen as one of the underwriters and Citigroup made $63 million on the deal. Six months later, Grubman downgraded his rating on the stock to "neutral."

The upgrade had been controversial at the time, but Spitzer's investigators uncovered a bombshell. They discovered an e-mail that Grubman had sent to a social friend on Jan. 14, 2001, in which he wrote:

You know everyone thinks I upgraded [AT&T] to get lead for [AT&T Wireless]. Nope. I used Sandy to get my kids in 92nd ST Y pre-school (which is harder than Harvard) and Sandy needed Armstrong's vote on our board to nuke Reed in showdown. Once coast was clear for both of us (ie Sandy clear victor and my kids confirmed) I went back to my normal negative self on [AT&T]. Armstrong never knew that we both (Sandy and I) played him like a fiddle.

According to Grubman's e-mail, Weill was motivated by a necessity to obtain Armstrong's vote in a boardroom battle with Citigroup co-CEO John Reed, who resigned in February 2000. After the e-mail was leaked to the press, however, Grubman disavowed it and said he had been showing off to impress a friend.

However, Spitzer's investigators also discovered a memo from Grubman to Weill entitled "AT&T and the 92nd Street Y," dated Nov. 5, 1999, in which Grubman reported back to Weill on a meeting with Armstrong, and reiterated a request for assistance in gaining the preschool admission for his children. Although Weill admits that he asked Grubman to take another look at his position on AT&T, both he and Grubman deny that there was a quid pro quo. Armstrong also denies that the stock upgrade had anything to do with his board vote.

In December 2002, Spitzer and the other regulators announced the terms of a preliminary settlement they had reached with Citigroup and nine other investment banks. Grubman was banned for life from the securities industry and ordered to pay a $15 million fine. Although he is still facing numerous civil suits, Grubman will not face criminal charges.

As CEO of WorldCom, Ebbers attracted attention for his penchant for wearing jeans and cowboy boots in business settings, and his passion for driving his tractor around his brother's soybean and cattle farm. Ebbers' career before WorldCom took a meandering path -- he started as a milkman and bouncer before becoming a high school basketball coach and then manager of a motel chain.

In 1982, Ebbers, along with Bill Fields, David Singleton and Murray Waldron, saw a golden opportunity, with the breakup of AT&T, to sell cheap long-distance service. The group sketched out the details of their business, named LDDS for "Long Distance Discount Service," at a coffee shop in Hattiesburg, Miss., and obtained a $650,000 loan from a local bank to buy a computer switch to route long-distance calls. Because AT&T was under court order to lease its phone lines cheaply to start-up companies, LDDS was able to offer cut rates to small businesses.

At first, Ebbers was merely an investor in LDDS. However, two years later, with the company in debt, Ebbers was named president, and he instituted the growth strategy for which the company would become known -- the purchase of its regional rivals, using LDDS stock as currency. Within 10 years, LDDS had purchased 30 companies and its sales reached nearly $1 billion. The company was renamed WorldCom in 1995.

Along with many in the telecom industry, Ebbers believed that the Internet age would lead to insatiable demand for fiberoptic networks and bandwidth. He aggressively pursued his growth strategy throughout the 1990s, all the while focused on relentless cost-cutting within his ever-growing company.

In 1997, WorldCom shocked the business world when it launched an unsolicited bid for MCI, which had been close to merging with British Telecom. With the merger, MCI WorldCom became the second largest U.S. long-distance company.

Two years later, WorldCom and Sprint announced plans to merge, but the deal was scuttled by regulators, and marked the end of WorldCom's major acquisitions binge. By this time, long-distance prices were plummeting and the telecom bubble had produced a glut of overcapacity. Some telecom analysts warned investors to sell their telecom stocks -- including WorldCom.

However, one important analyst maintained a "buy" rating as WorldCom shares continuously lost value. Throughout WorldCom's meteoric rise, Ebbers and his board of directors were advised by Salomon Smith Barney telecom analyst Jack Grubman. Grubman attended three meetings of WorldCom's board and was listed as a financial adviser on the WorldCom-MCI deal.

According to former Salomon Smith Barney broker David Chacon, Ebbers profited personally from his relationship with Grubman. Chacon alleges in a lawsuit that Grubman's strategy of "spinning" IPO shares to win over banking business from Salomon clients proved very lucrative for Ebbers. Although Salomon told Congress that Ebbers made $11 million off 21 IPOs, Chacon says that he made much more than that in one IPO alone. According to Chacon's lawsuit, Ebbers received 350,000 shares in the April 1999 IPO of a company called Rhythms NetConnections -- and made $16 million off the deal. Salomon Smith Barney disputes the lawsuit.

Salomon Smith Barney earned roughly $140 million from WorldCom over four years. In May 2001 and again in May 2002, with WorldCom desperate for cash and its stock price declining, Citigroup, Salomon's parent company, sold investors $17 billion in WorldCom bonds, limiting its own exposure from loans to the company -- and to Ebbers personally.

Over the years, Ebbers had accumulated a private business empire, which included a luxury yacht named Aquasitions, a lumber mill, a ranch in Canada and a half million acres of timberland across Mississippi, Tennessee, and Alabama. Records of the 1999 timberlands purchase show that a $499 million loan, later folded into a billion dollar mortgage, was arranged by Travelers, a Citigroup subsidiary, and backed by WorldCom stock. Critics argue that Citigroup should have disclosed its interest in keeping WorldCom shares high in order to guarantee the loans, and note that Grubman kept a "buy" rating on the stock, even as shares were plummeting.

In addition to his Citigroup loans, Ebbers received hundreds of millions of dollars in loans from WorldCom itself. In late 2000, Bank of America, which had also granted Ebbers loans backed by WorldCom stock as collateral, threatened him with a margin call, which would have forced him to sell shares to pay back the loan. WorldCom guaranteed the loan in order to avoid Ebbers selling off a large number of its shares and damaging its stock price.

Ebbers was forced to resign from WorldCom in April 2002 amid an SEC inquiry into both his corporate loans and WorldCom's accounting practices. At the time of his resignation, he owed $343 million to the company. He is currently living on his 2100-acre estate.

The Brooklyn-born son of Polish immigrants, Sandy Weill's first job on Wall Street was as a stock runner for Bear Stearns. A legendary deal-maker, renowned as the Street's dominant banker, Weill has also been reviled (and in some quarters admired) as an imperial boss and a ruthless cost-cutter.

In the early 1960s, Weill and three partners, including future SEC Chairman Arthur Levitt, opened a small Wall Street research firm named Cogan, Berlind, Weill and Levitt (disparagingly known on Wall Street as "Corned Beef with Lettuce"). CBWL established itself in the 1970s through mergers and acquisitions with several prestigious brokerage houses, including Hayden Stone, Shearson Hamill, and Loeb Rhoades. The firm, renamed Shearson Loeb Rhoades, became the second largest brokerage firm in the U.S.

Weill made what turned out to be a disastrous move in 1980, when he sold Shearson Loeb Rhoades to American Express for nearly $1 billion. He soon clashed with American Express' corporate style and chafed as second-in-command under CEO John Robinson. Frustrated, he quit in 1985, at age 58, and failed in a subsequent attempt to take over Bank of America the same year.

Weill's comeback began the following year, when he became CEO of a consumer-loan company called Commercial Credit. Again he built his new company through a series of mergers and acquisitions that were followed by ruthless cost-cutting. He acquired Primerica, which included the Smith Barney brokerage firm, in 1988, and the Travelers insurance company in 1993. The following year his company, renamed Travelers, bought Shearson back from American Express for $1 billion and in 1997 he purchased the Salomon Brothers brokerage firm and combined it with Smith Barney to form Salomon Smith Barney.

Weill's crowning glory, however, was merging Travelers with Citicorp in 1998 to create Citigroup, the largest financial institution in the world. The superbank combined one of the largest insurance companies (Travelers), one of the largest investment banks (Salomon Smith Barney), and one of the largest commercial banks (Citibank) in America. Weill and Citibank CEO John Reed became co-CEOs of Citigroup, a stormy arrangement that lasted until early 2000, when Reed stepped down after losing a power struggle to Weill.

The only thing standing in the way of Weill's superbank was the 1933 Glass-Steagall Act, which prevented commercial banks from selling securities. So Weill took his case to Washington to convince the Federal Reserve to approve the merger and persuade Congress to repeal Glass-Steagall (which it had attempted to do several times in the previous decade and for which support was growing). He privately lobbied Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and President Bill Clinton for their support. In September 1998, the Fed agreed to give temporary approval for Weill to operate his superbank for two years, and Congress repealed Glass-Steagall in November 1999.

Citigroup, like many Wall Street investment firms, found itself under fire when the 1990s bull market turned bearish. Regulators began investigating Salomon Smith Barney analyst Jack Grubman for conflicts of interest and for his alleged involvement in "spinning" IPO allocations to the personal accounts of corporate banking clients to win further business. The firm was under attack from shareholders, who filed lawsuits accusing Citigroup of not performing due diligence before it became involved in WorldCom's May 2001 and 2002 bond offerings.

Perhaps most damaging, however, was when Weill personally became a target of New York Attorney General Eliot Spitzer's investigation into Wall Street practices. Weill admitted to having asked Grubman to "take a fresh look" at AT&T before Grubman raised his rating in November 1999. However, he denied giving Grubman a direct order to upgrade the stock and insisted the reason behind his request was his firm belief in the company. Weill did direct a $1 million request to the 92nd Street Y, where Grubman was trying to enter his children in its exclusive preschool, but denies that it had any connection to Grubman's upgrade.

In August 2002, with Citigroup under increasing scrutiny, Weill announced that the firm would enact a series of voluntary reforms, including new regulations to maintain the "Chinese wall" between the research and investment banking departments, and requiring analysts to formally certify their reports to ensure that they "accurately reflect their personal views." In the wake of criticism for Citigroup's role in structuring Enron's off-the-books corporate entities, the firm also said it would not participate in structuring such deals unless the corporations involved fully disclosed them on their balance sheets. And to mollify corporate governance critics, Citibank promised to expense stock options on its income statements. Weill withdrew his nomination to the board of the New York Stock Exchange in March, after critics, including Eliot Spitzer, protested vigorously.

In the April 2003 final settlement between Citigroup and regulators, Weill was barred from talking to his firm's research analysts without a company lawyer present. Spitzer agreed not to pursue criminal charges against Weill or the firm, which agreed to pay $400 million in penalties, disgorgement of profits, and other payments.

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published may 8, 2003

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