[A-List] US legitimation crisis: WorldCom, Citigroup

["Michael Keaney" <michael.keaney@xxxxxx>]

More Clouds Over Citigroup in its Dealings With Ebbers
By GRETCHEN MORGENSON
New York Times, November 3 2002

There is no doubt that Bernard J. Ebbers, the founder and former chairman of
WorldCom, was a top client for Citigroup and that his care and feeding were
Job 1 at the firm. Between heaping his plate with almost one million shares
of hot stock offerings and raising billions of dollars from investors to
fund his business, Citigroup worked to keep Mr. Ebbers happy.

But a document that came to light recently indicates a relationship between
Mr. Ebbers and Citigroup in one deal that is closer than previously known.
The document, uncovered by the counsel to H. Carl McCall, the New York state
comptroller, Democratic candidate for governor and the court-appointed lead
plaintiff in a class-action suit against WorldCom, is a January 2001 filing
with the Tennessee secretary of state by Joshua Timberlands, a company
controlled by Mr. Ebbers. It shows Travelers Insurance, a Citigroup unit, as
an equity owner in the company alongside Mr. Ebbers.

Set up by Mr. Ebbers in September 1999 to buy 460,000 acres of timber
property from Kimberly-Clark , Joshua Timberlands is a private company. It
paid $400 million for the land. Units of Travelers lent Mr. Ebbers $134
million on the deal.

Because the loan was high-risk, Travelers received a 2.5 percent equity
stake in the company, which it still holds. The stake gives Travelers
limited voting rights in Joshua matters, specifically granting it the right
to block a bankruptcy filing by the company.

The Travelers loan to Joshua Timberlands was disclosed in Mr. McCall's
complaint last month and had been turned up by his legal counsel at
Bernstein Litowitz Berger & Grossmann in New York and Barrack, Rodos &
Bacine in Philadelphia. At the time, Citigroup did not mention an equity
stake and declined to disclose the terms of the loan. It is unclear what
interest rate Mr. Ebbers is paying.

Citigroup did say that Travelers was a longtime lender to timber management
companies and that the loan had nothing to do with WorldCom's extensive
dealings with Salomon Smith Barney, Citigroup's brokerage unit. About eight
months after Travelers made the loan and acquired the equity stake, WorldCom
picked Salomon to be lead underwriter of $5 billion of its debt.

"The information we've uncovered strengthens our case on behalf of the
millions of unsuspecting investors who have paid too high a price for the
WorldCom debacle," Mr. McCall said.

"This information yet again shows the relationship between Citigroup and Mr.
Ebbers went deeper than the investing public was led to believe and it is
outrageous that these facts were not clearly disclosed to the investing
public."

A spokeswoman for Citigroup said: "A small equity interest is a perfectly
routine consideration for arranging a loan of this sort." She also said the
equity interest was not substantive enough to require disclosure.

Another cloudy aspect of the Ebbers-Citigroup relationship is a loan that
Citigroup's private bank made to Mr. Ebbers, using WorldCom stock as
collateral. Citigroup declines to discuss this arrangement, but a loan to
Mr. Ebbers from Citibank shows up in a filing in Mississippi, where WorldCom
is based, dated Aug. 6, 1999. The Citibank loan is also mentioned in an
April 2002 letter to Mr. Ebbers from WorldCom outlining the terms of the
company's roughly $400 million loan to the former executive.

A LOAN between Citibank and Mr. Ebbers collateralized by WorldCom stock is
intriguing because it would give Citigroup a reason to want to prop up
WorldCom stock. And nobody was better at that than Jack B. Grubman,
Salomon's former telecommunications analyst.

On Aug. 20, 1999, when WorldCom shares were trading at $75.75, Mr. Grubman
issued a strong buy recommendation on WorldCom stock, giving it a target
price of $130. The stock never made it there. But he continued to rate it a
buy until April 23 this year. Three months later, WorldCom filed for
bankruptcy.