“Amid disclosures that investment-banking clients of Salomon Smith Barney pocketed huge profits from hot IPOs, the New York attorney general’s office is looking into the activity of senior Salomon executives who worked closely with former research analyst Jack Grubman,” writes Charles Gasparino in today’s Wall Street Journal.

“Attorney General Eliot Spitzer is seeking to determine if roles played by Mr. Grubman’s bosses resulted in firm-wide conflicts of interest involving the sale of now-worthless telecommunications stocks during the late 1990s, people with knowledge of the probe say.”

“Investigators from Mr. Spitzer’s office are reviewing subpoenaed Salomon documents — including e-mails — for interaction between Mr. Grubman and senior executives about initial public offerings of stock, his research reports promoting the stock Salomon sold and advisory work on lucrative investment-banking transactions, these people say. In addition, they have interviewed telecommunications-industry executives who were Salomon clients about the practices of Salomon officials, they say.”

“While Mr. Grubman is still at the heart of the inquiry, the attorney general’s office is specifically interested in the activities of Michael Carpenter, the head of Citigroup Inc.’s Salomon unit; Eduardo Mestre, chairman of Salomon’s investment bank; and Kevin McCaffrey, head of Salomon’s stock-research department and Mr. Grubman’s direct supervisor, these people say.”

“A spokeswoman for Salomon said Mr. Spitzer’s office hasn’t interviewed either Mr. Carpenter or Mr. Mestre; she declined to comment about Mr. McCaffrey. In a statement, the spokeswoman added: ‘As you know, we are cooperating with the investigation and will continue to do so.’ Messrs. Carpenter, Mestre and McCaffrey didn’t return calls for comment. As reported, Mr. Spitzer’s office also is examining what role Citigroup Chief Executive Sanford Weill may have played in a decision by Mr. Grubman to upgrade his rating on AT&T Corp. stock during 1999, a move that helped Salomon win a lucrative investment-banking assignment.”

“Mr. Spitzer’s inquiry is part of a broad investigation by state and federal officials into whether Wall Street firms violated regulations by hyping stocks of companies that were investment-banking customers, possibly deceiving investors who lost billions of dollars when many went bust.”