Playground Of The Rich

For months New York Attorney General Eliot Spitzer has been investigating how brokerage houses hoodwinked investors during the great bull market. Last week Spitzer turned his spotlight onto an even more cutthroat arena: the internecine world of Upper East Side nursery schools. In e-mails leaked to newspapers, Salomon Smith Barney's former star telecom analyst Jack Grubman implored his boss, Citigroup chairman Sandy Weill, to help get the Grubmans' twins into the ultracompetitive 92nd Street Y preschool. Weill used his pull, and the tykes won coveted seats in Manhattan's prestige Play-Doh pen.

Ordinarily there's no scandal in such influence wielding. But in an e-mail to a friend, Grubman bragged that in order to win Weill's help, he'd temporarily upgraded his rating of AT&T stock to help Weill influence AT&T CEO C. Michael Armstrong--a client and Citigroup director. Last week Grubman disavowed the message and Weill called it "pure nonsense."

The scandal's latest turn is more a window on the wealthy than a lesson in high finance. The concept of a "prestigious nursery school" may take some explaining beyond the Hudson, where most preschools' sole requirement is that Mom and Dad's check can't bounce. Yes, the kiddies at the 92nd Street Y still crayon, patty-cake and climb monkey bars like children at less prestigious schools (though at 92nd Street, they do it on an outdoor terrace with a retractable roof a la the Astrodome). But in New York, where the top preschools subject toddlers to interviews, testing and play observation before judging admissibility, the best nursery schools give the chosen few a leg up in later years when they apply to private elementary and high schools like Collegiate and Spence. Mostly, though, preschool snobbery is about status--more akin to country-club memberships than kids' SAT scores.

While the youngest Grubmans refine their scissor skills, it remains unclear how much legal peril Dad may ultimately face. (Spitzer and Grubman's attorney didn't return calls.) But in the language of the potty-training set, he could be in deep poopy. If investors sue, "there could be serious claims for damages,'' says Jeffrey T. Leeds of Leeds Weld & Co., a private equity firm. "This nursery-school story provides, as they say in the movies, a motive." As for the Grubman children, the next beat in their father's tragic tale may give them something far more valuable than a pricey preschool diploma: a lesson that's perfect fodder for a killer college-admissions essay.