Preschool’s Link to Weill Probed

State investigators probing Wall Street conflicts of interest have turned their attention to an alleged nursery-school quid pro quo involving Citigroup Inc. Chief Executive Sanford I. Weill and his former top telecommunications analyst, according to a person close to the investigation.

The thrust of the inquiry by the New York attorney general’s office, this person said, is to determine whether Weill used his influence -- and a $1-million Citigroup donation-- to help get the analyst’s twin sons into an exclusive Manhattan preschool, partly in exchange for the analyst’s upgrading his investment opinion on AT&T; Corp., a major Citigroup client.

The analyst, Jack Grubman of Citigroup’s Salomon Smith Barney unit, had long held a negative view of AT&T.; He boosted his rating on the phone giant’s stock to a “strong buy” from a “hold” in November 1999. Shortly afterward, Citigroup won a role in the public stock offering of AT&T;’s wireless unit.

In an e-mail message sent by Grubman and later examined by investigators, the analyst bragged to a money manager that he upgraded AT&T; so Weill would help get Grubman’s sons into the preschool program at the 92nd Street Y, one of the most desirable schools on Manhattan’s Upper East Side.

Weill sought the upgrade, according to Grubman’s e-mail, because he wanted to enlist the aid of C. Michael Armstrong, AT&T;’s chairman and a Citigroup director, in ousting Weill’s rival, former Citigroup co-Chairman John Reed.

Under pressure from investigations by New York Atty. Gen. Eliot Spitzer and congressional committees, Grubman resigned in August.

Weill, in a memo to employees released by Citigroup last week, acknowledged asking Grubman to “take a fresh look at AT&T; in light of the dramatic transformation of the company.” But he denied an exchange of favors and said he expected the analyst to “reach independent conclusions that were entirely his own.”

Weill also acknowledged helping Grubman with the 92nd Street Y, but said he did so only “because he was an important employee who had asked for my help.” He said the donation to the Y was “consistent with Citigroup’s philanthropic efforts.”

Last week, Grubman backed away from the motivations described in his e-mail, saying: “Regrettably, I invented a story in an effort to inflate my professional importance.”

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Times staff writer Walter Hamilton contributed to this report.