Ethics Newsline®

NEW YORK
Citigroup, the world’s biggest financial services firm, agreed last week to pay $2.65 billion to settle a series of class-action suits accusing the firm of misleading investors into buying WorldCom stock before 2002.

The settlement ends a number of suits alleging that Citigroup and its analysts, including star Jack Grubman, touted WorldCom stock even though its own private analyses noted that the stock was a bad buy.

Under the weight of massive accounting irregularities, WorldCom filed for the biggest bankruptcy in U.S. history in July 2002.

Citigroup, its Salomon Smith Barney division, and other finance firms are wrestling with lawsuits and investigations into whether they allowed their desire to win lucrative banking contracts with powerful companies to color their brokerage advice, according to a report from the Associated Press.

Last week, Citigroup denied any wrongdoing, but agreed nevertheless to pay $2.65 billion in order “to put an unfortunate chapter behind us,” according to chief executive Charles Prince.

While Citigroup refused to concede any violation in the WorldCom case, New York State Comptroller Alan Helvesi split no hairs in denouncing the firm in a brief filed last month, noted the New York Times.

“Grubman fraudulently manipulated the underlying financial analyses he used to value WorldCom stock to maintain falsely inflated target prices for the stock and justify a ‘buy’ rating,” Helvesi wrote. “[P]roviding accurate stock ratings conflicted with Salomon’s paramount goal of securing investment banking business, and not giving true and accurate information to investors.”

Citigroup also said it has set aside $6.7 billion for potential claims stemming from its involvement with Enron Corp. and to pay for settlements involving other inquiries and irregularities, noted the AP.