How CitiBank Screwed it Mutual Fund Investors?

Bloomberg has a fascinating story about how Citibank, the former home of infamous analyst Jack Grubman used its mutual funds as dumping ground for slumping telecom stocks. Bloomberg analysis of 108,000 SEC documents shows that “Wall Street’s five largest underwriters owned in their private partnerships and mutual funds a disproportionate number of shares in companies that were clients.”

A perfect example is Genuity, a now defunct broadband company. Citigroup held at least 13 million shares of Genuity, a company whose IPO the global giant managed, even as the shared plummeted by 86 percent, SEC filings show. Genuity blew through a $2 billion stash before filing for bankruptcy in November 2002. Some other Citibank/Salomon Smith Barney examples:

* During the fourth quarter of 2000, Citigroup held 1.45 million shares of XO Communications and increased its holdings of the company’s shares to 2.1 million in the fourth quarter of 2001. Citigroup comanaged both XO’s $258 million IPO and $578 million secondary sale of stock to the public.

* In the fourth quarter of 1999, SEC filings show, Citigroup held 2.86 million shares of Metromedia Fiber Network and at the end of the first quarter of 2001, Citigroup held 2.87 million shares, when the stock traded at $5.48. Citigroup’s Metromedia stake was then worth $15.7 million — a 78 percent loss over six quarters.

Also read: Calpers versus Sandy Weill: “We have one time a year when we can hold directors accountable. And we want to hold [Weill] accountable for the significant costs incurred by settling civil investigations of improper practices,” says Brad Pacheco, a CalPERS spokesman.

Grubman lackey settles for $100,000: Christine Gochuico, a former vice president and telecommunications research analyst for Salomon Smith Barney, Inc. (SSB), settled charges relating to misleading research by agreeing to a $100,000 fine and a six-month suspension from the securities industry.