NASD Is Investigating Citigroup’s McCaffrey

Citigroup Inc. executive Kevin McCaffrey is being investigated by the NASD after claims he failed to supervise analysts such as Jack Grubman who allegedly published misleading research, according to the NASD’s Web site.

Citigroup, the world’s largest financial-services firm, replaced McCaffrey as U.S. head of stock research Oct. 9. He now heads Internet sales and marketing. He has denied wrongdoing to regulators, NASD said.

A Citigroup spokeswoman declined to comment and McCaffrey couldn’t be reached.

The investigation by the NASD, the brokerage industry’s self-regulatory group, may keep the spotlight on an affair Citigroup has been working to put behind it.

The bank’s chairman, Sanford I. Weill, withdrew his nomination to the New York Stock Exchange board Sunday after New York Atty. Gen. Eliot Spitzer said his appointment would be inappropriate.

Spitzer’s 2002 investigation of Citigroup, which owns brokerage Salomon Smith Barney, included allegations that Weill conspired with Grubman to boost Salomon’s rating on AT&T; Corp. as the brokerage sought underwriting business from AT&T; in 1999.

The NASD, in a report on McCaffrey, said he was being investigated for allegedly “failing to observe high standards of commercial honor” and violating a rule requiring that stock research not be exaggerated or misleading.

Grubman has tentatively agreed to pay a $15-million fine and refrain from working in the securities industry for life. He quit Salomon in August.

Citigroup stock gained 1 cent to $35.90 in NYSE trading.