Man Without Qualities

Thursday, July 25, 2002

Sandy Weill's Fall Guy?

Tony Adragna of QuasiPundit asks Is "The SEC Talking To Sandy Weill?" Mr. Adragna locates the ultimate likely source of Citigroup Enron culpability (if there is any) not with Robert Rubin, but with Sandy Weill. Of course, Mr. Weill almost certainly knew before hand of Mr. Rubin's attempt to shore up Enron and its credit rating. If Mr. Adragna's concerns (and at this point that is what they are, Mr. Adragna has not made any acusations) are born out, does that mean Mr. Weill failed to inform Mr. Rubin of all Mr. Weill knew before Mr. Rubin, for example, called the Treasury Department?

Are these two men still on speaking terms?

The full story of the Citigroup/Enron relationship is likely complex, and Mr. Adragna's concerns are not unreasonable.

What all this means is that there is a pressing need for a full-scale investigation of Citigroup and its higher management. Some of the loftiest heads in the nation may roll as a result of that investigation.

But at this point, the need is for investigations, not accusations and not speculation. Only hard facts can settle this increasing disturbance. And it is important to make it clear to Citigroup and everyone else that the investigation has started and has broad scope, or else there is a risk that people involved will destroy documents claiming that they did not know an investigation had begun - EXACTLY AS HAPPENED AT ENRON AND ANDERSEN.

So why is it that Senator Lieberman and the Senate Democrats are refusing to call Mr. Rubin to explain himself?

Mr. Lieberman says that he wants to go "right to the top" and talk to Citigroup's Chief Executive Officer. This is at the same time some of Mr. Rubin's defenders are arguing that because Mr. Rubin occupied such a high position at Citigroup he was unlikely to have any valuable knowledge of Enron-related operations.

So which is it: Is Mr. Rubin too high or too low in Citigroup management to be worth talking to?

Some of Mr. Rubin's supporters point out that he supposedly was not yet an officer at Citigroup when the most spectacular Citigroup/Enron deals were created. But that particular point in time is likely not the most relevant. After all, nobody is claiming that these deals were in themselves wrong. The problem comes up later, when choices have to be made as to how to account for and disclose the deals. Mr. Rubin was surely in place at Citigroup when the Enron financial reports incorporating the effects of the Citigroup transactions started to come in. And, if Citigroup didn't know how Enron was going to treat their product (highly unlikely, to say the least, for an "off balance sheet product"), Citigroup certainly found out when the first Enron financials were delivered.

And where the heck were the Citigroup lawyers while these squirrelly deals were being put together and, more importantly, maintained and administered? The Man Without Qualities does not know what law firm represented Citigroup in these transactions, but Shearman & Sterling is their long-time counsel. So assume for the purposes of this discussion that Shearman & Sterling (or some comparable firm) represented Citigroup in the Enron transactions. Many aspects of these transactions probably raised serious legal issues and risks that Shearman & Sterling had an obligation to point out to Citigroup. THAT MEANS THAT SHEARMAN & STERLING THEN WROTE MEMORANDA EITHER TO CITIGROUP OR TO ITS OWN FILES POINTING OUT THESE LEGAL RISKS AND/OR PROBLEMS. Those memoranda are supposed to still be in the corporate and law firm files.

Such memoranda are clearly subject to attorney-client privilege. As has been pointed out by the Man Without Qualities in the past, Citigroup's board of directors should have no problem waiving that privilege, given the current national unease. Those memoranda should provide a virtual roadmap either incriminating or exculpating Citigroup.

Reports are that the new "corporate governance" bill just passed by the Congress includes a provision requiring lawyers to report on wrongdoings by corporate clients. Asking Citigroup for its legal memoranda is something in the same spirit.

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