Nursery School Scandal

This is a story of scandal, set in the heart of New York City's elite social circles. It seems that some of Manhattan's most powerful and well-connected are willing to pull a lot of strings to ensure their kids' ranking in the social pecking order.

The strings that former telecom stock analyst Jack Grubman allegedly pulled three years ago to get his then-2-year-old twins into what is considered a hot nursery school could become the latest scandal to rock Wall Street.

What The Wall Street Journal has dubbed "kid pro quo" offers a rare insight into Manhattan's most exclusive social set, and has prompted the New York State Attorney General to investigate just how far Grubman went to get his kids into a prestigious pre-school.

CEOs Reduced to Tears

Karen Quinn, co-founder of "Smart City Kids," is a professional school placement consultant hired by anxious New York parents desperate to get their children one of the few, coveted spots for one of those hot schools. She gave 20/20 a primer on how the system can work.

Quinn said hot nursery schools are like hot Manhattan restaurants or clubs — only a select few can get into them. "I have seen CEOs of big companies reduced to tears over this issue" she said.

Quinn added, "Getting into the right nursery school will help you get into the right private school which will take you to the right Ivy League college."

Quinn says her job is to coach and prepare parents and toddlers, even helping to pick out clothes and jewelry for the big interview. She's seen it all, she says, including the tactics of one single mom, who hired a man to play the part of her husband to boost her chances of getting her kid accepted into the school. After the child was accepted, Quinn said, the mother had to go through a "fake" divorce.

But that's nothing compared with the allegations in the current investigation of what happened at the nursery school at the 92nd Street Y on Manhattan's Upper East Side, known to be perhaps the most elite by New York playground moms like Carol Stillman.

Stillman said, "People that are very connected and wealthy have all the spots there."

The 92nd Street Y is not like most Y's. It costs as much as $14,000 a year for nursery school and as many 3-year-olds arrive in chauffeured Lincolns and Mercedes as they do in strollers.

"There's a tremendous ladder of prestige associated with these schools. The hierarchy is as carefully calibrated and understood by all New Yorkers as the Ivy League," said author James Atlas, who has put two children through the New York City nursery school scene and written about it for The New Yorker magazine.

Woody Allen's child was accepted to the 92nd Street Y nursery school, as were the children of Michael J. Fox, Kevin Kline, Connie Chung, and Katie Couric.

"When their 4-year-old doesn't get into preschools," Atlas said, many of these social elite think "it's the beginning of the end. They didn't get on the track. It's not gonna happen for them. They might have to move to the suburbs. Every dire possibility unfolds before your eyes."

"It's the whole family that applies. It's not just the children. The parents have to be important," Atlas said, "It's a package."

And far from a sure thing, even for a multimillionaire like Grubman. Once a highly respected figure on Wall Street, Grubman is now alleged to have given a favorable rating to AT&T stock in exchange for his twin toddlers' acceptance into the Y.

Favors Among Friends

During the time that he was trying to gain admission for the twins, he had also been asked by his boss, Sanford I. Weill, to take a "fresh look" at his longheld negative view of AT&T. And now an e-mail to Weill that was leaked to The Wall Street Journal seems to link the two events.

Titled "AT&T and the 92nd Street Y," Grubman's e-mail first makes clear he is re-evaluating AT&T and then proceeds to ask his boss, Weill, to help get his twins into the Y nursery school. Grubman wrote getting his children into nursery school "comes down to 'who you know.'"

However it happened, the school ultimately did accept the Grubman twins. His children can be seen each morning arriving at the Y with their nanny and chauffeur. They were accepted in the months after Grubman upgraded his recommendation on AT&T from "neutral" to "buy."

Weill, who declined to speak with 20/20, says he asked Grubman to take what he calls a fresh look at the AT&T stock — but it was not connected to helping get Grubman's twins into the Y. Weill says it is nonsense to think he pressured Grubman to do anything unethical.

But Weill put on a full court press at the 92nd Street Y to get Grubman's children into nursery school.

Not only did he make calls to his friends on the Y's board of directors, but he had Citigroup donate $1 million to the Y. The 92nd Street Y says it evaluates all children for nursery school on the same basis and that money — even a $1 million donation — has no influence.

Grubman declined to talk with 20/20 but has said his rating on the AT&T stock was based on merit and had nothing to do with the help he received in getting his children into nursery school.

But if the allegations against Grubman are true, he may have committed a serious fraud against AT&T investors, according to Arthur Levitt, the former chairman of the Securities and Exchange Commission and a critic of corporate America.

"You could argue that millions of dollars have been lost by individuals by stock recommended by an analyst that didn't really believe the report he was creating," Levitt said.

Levitt, whose own children went to New York City private schools, said buying entry into these schools has gone on in the elite community for as long as he can remember. "Some of them tell you how much you have to put up, some of it's done by winks and nods," according to Levitt.

Stillman, the mother of a 3-year-old, did not know Sandy Weill and did not have a million dollars to donate. She was unable to get her son into the Y, and says she now feels glad that he isn't in school there. "I would rather have him be in an environment where people value things other than status and money because those aren't the values I want Cody to be brought up with," she said.