On the way to transforming Citigroup Inc. into the largest and most profitable financial services firm in the nation, Sanford I. Weill also helped create a new kind of Wall Street, one in which the key components of modern finance worked together under the same roof.

Now Citigroup and its leader are caught up in the scrutiny of that new world. The question is whether cozy relationships between stock analysts, investment bankers and other financial players created conflicts that encouraged companies to deceive investors and give big clients unfair advantages.

The increasing pressure on Weill raises questions about whether he can repeat what he's done in other crises in his career: regroup and outmaneuver his critics.

The 69-year-old chairman and chief executive is being questioned by federal, state and industry investigators about Citigroup's research and other operations. Much of the attention on Citigroup has centered on the former star analyst in its Salomon Smith Barney brokerage division, Jack Grubman, who covered the telecommunications industry.

Last month, in sworn testimony, Weill told investigators from NASD, the securities industry's main self-regulatory body, that he barely knew Grubman and had very little interaction with him, according to sources.

Today, the Wall Street Journal reported that Grubman wrote in e-mails to a money manager that he had upgraded his rating of AT&T to assist Weill in a boardroom struggle with then co-Citigroup chief executive John S. Reed. Weill denied the assertion, and Grubman said in a prepared statement that he made up the story in the e-mail.

The controversy intensified the spotlight on Weill's relationship with Grubman, which could complicate Weill's effort on behalf of reform that could end the investigations. In an effort to reconstruct some of the walls he helped tear down, Weill is urging that research be walled off from investment banking as part of a "global settlement" of the investigations into conflicts of interest at Citigroup and a dozen other companies.

Weill is determined to resurrect the reputation of Citigroup -- a company with $1 trillion in assets doing business in 100 countries on six continents -- and his own, friends said.

One friend, who has known him for years and who requested anonymity, said: "Citigroup is Sandy's life. He lives to come to work, succeed, and have things written about him, as long as they are good things. If they are, it's like air for him."

Advancing the Hard Way

Weill, who declined to be interviewed for this story, had a difficult start on Wall Street, failing to get in the door at establishment firms such as Goldman Sachs and J.P. Morgan. He founded a boutique brokerage with friends and raced to Wall Street stardom through a series of bold acquisitions.

His successes led him to the job of president of American Express Co. He quit, though, complaining that he was tired of playing "deputy dog" to chief executive James Robinson III.

Looking for a ticket back to the big time, Weill launched an effort to create his own financial juggernaut. He started with a damaged cornerstone, Baltimore consumer finance firm Commercial Credit, and through aggressive dealmaking, inspired timing and ferocious cost-cutting eventually built Citigroup.

His management style became legendary. He eschews memos and relies instead on working the executive hallways at Citigroup's Park Avenue headquarters, issuing instructions and gathering information in person.

After the collapse of the 1990s stock market boom, life soured for Citigroup and Weill. Prosecutors began investigating whether Wall Street should bear responsibility for major losses by investors. The actions of Citigroup -- especially Grubman's -- attracted attention after the telecommunications sector plunged.

Citigroup recently agreed to settle charges by NASD that Grubman issued inflated reports on Winstar Communications, a major Salomon banking client. The firm admitted no wrongdoing in the settlement, and Grubman, who was forced out of Salomon in August, is fighting the charge.

The NASD action included disclosure of embarrassing e-mails and memos that helped shed light on the operations of Citigroup's Salomon. In one e-mail from February 2001, an analyst responded to an institutional investor who asked why Salomon used a particular method to come up with a $50 price target for Winstar, then trading at $13 a share.

"There really is no good reason," the analyst replied, "except the unwillingness to change our Target Price for optics; although I would admit $50 per share is shall we say -- extremely aggressive." In a May 18, 2001, e-mail, Grubman wrote, "If anything the record shows we support our banking clients too well and for too long."

In an e-mail that surfaced today, described by sources familiar with their contents, Grubman suggested that he upgraded AT&T to help Weill win the support of AT&T Chairman C. Michael Armstrong, a Citigroup board member, in a fight to knock out Reed and take full control of the financial service giant created by the merger of Weill's Travelers with Reed's Citicorp. Weill won that battle last year.

Grubman today acknowledged writing the e-mails but said he concocted the story about Weill and Armstrong to puff up his reputation.

"I have said a number of inappropriate, even silly, things in a few private e-mails that have been made public over the last few months," Grubman said in a prepared statement. "The contents of these particular e-mails, while personally embarrassing, are completely baseless. Regrettably, I invented a story in an effort to inflate my professional importance and make an impression on a colleague and friend. My research on AT&T was always done on the merits. It was not designed to help Salomon Smith Barney get investment banking business, nor was it designed to influence Mike Armstrong's vote on Citigroup board matters."

Weill said there was "absolutely no connection" between the AT&T upgrade and Armstrong's vote on making Weill the lone chief executive.

Weill did acknowledge for the first time that he urged Grubman to "take a fresh look at AT&T in light of the dramatic transformation of the company and the industry." Weill continued in a memo to Citigroup employees: "I always believed that Mr. Grubman would conduct his own research and reach independent conclusions that were entirely his own."

Weill has said repeatedly that he never told any analyst what to write but he has not addressed the question of whether more subtle pressure was applied.

Citigroup released a corporate statement calling the e-mails "pure fantasy" on Grubman's part.

"The regulators have already received unequivocal sworn testimony from Mr. Grubman that they are 'fabrications' with 'zero basis' in reality,'' the statement said."

In another e-mail described by someone who has seen it, Grubman bragged that Weill had helped his daughters get into an exclusive Manhattan pre-school after he bumped up his rating on AT&T. Weill today acknowledged providing the help but said it was because Grubman was an "important" employee and that Citigroup had been a major supporter of the school, the 92nd Street Y on the Upper East Side. Grubman, for his part, said the boast about Weill helping him out as payback for the AT&T upgrade was another part of an extended fabrication.

A spokesman for New York state Attorney General Eliot L. Spitzer, who is investigating Wall Street practices, said an inquiry into Weill's role in the AT&T upgrade was continuing. Spitzer recently informed the Citigroup chairman that his legal interests might have diverged from those of the company and that he should obtain personal counsel, which Weill did. A source familiar with the Spitzer investigation said no charges against Weill were imminent.

Weill recently moved to create a new operating unit to house Citigroup's retail brokerage and research departments. He installed Sallie Krawcheck, who has little retail brokerage experience, to head the unit.

Probes and More Probes

Grubman and his research ratings are not the only problems for Weill and Citigroup.

Inquiries into the bank's relationship with Enron Corp. continue. The Senate Permanent Subcommittee on Investigations plans further hearings on the topic this year or early next year, a committee official said. Without being specific, the official said the committee expects to release documents about Citigroup's role in the Houston energy trader's collapse. Citigroup has maintained that its relationship with Enron was proper.

Manhattan District Attorney Robert M. Morgenthau, meanwhile, continues to poke around Citigroup's Enron ties. The firm also faces shareholder lawsuits and a class-action suit filed by New York state on behalf of investors who lost money on WorldCom Inc., a major Salomon banking client.

Michael Mayo, an analyst at Prudential Securities who has followed Weill for years, said the current crisis has been particularly difficult for Weill, because he interprets any criticism of the company as a personal attack.

"Sandy Weill is Citigroup. He identifies with the company. He truly believes if you criticize Citi you criticize him. Anyone close to him will tell you he really personalizes it," Mayo said.

Citigroup chief Sanford I. Weill, left, is confronted by several investigations of his company and himself. He commented on President Bush's speech on corporate responsibility in July with Dick Grasso, chairman of the New York Stock Exchange.Salomon Smith Barney analyst Jack Grubman appeared before a House committee in July.