Salomon And Grubman May Face Charges

The charges are thought to relate to the firm's positive research reports on Winstar Communications, a telecommunications company which filed for bankruptcy protection last year. Although NASD and Salomon are still believed to be negotiating and the firm remains hopeful that it can persuade the regulator to settle on lesser charges, securities fraud charges could be filed in a matter of days.

A Salomon spokesman has confirmed that the firm is cooperating with investigators and said that it had 'no intent to mislead investors' regarding Winstar. Grubman had been a supporter of the stock for years and remained a champion even when evidence of the company's financial problems emerged in early 2001.

Grubman is believed to have wanted to downgrade the stock in April - when other analysts were doing the same - but is thought to have told NASD investigators that he was prevented from doing so by someone in Salomon's compliance department. The investigators have been attempting to establish whether this was true and, if so, what the firm's motive would be.

Speculation is mounting that Citigroup's commercial-banking unit may have had an outstanding loan with Winstar at the time and would have been concerned that a downgrade may have put it at risk.