Dec. 8 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Charles Prince ???said the bank may not have stopped conflicts of interest that allowed analysts to seek investment-banking business had investors not complained about biased research reports, according to a transcript of an Aug. 5 deposition released today.

Dec. 8 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Charles Prince said the bank may not have stopped conflicts of interest that allowed analysts to seek investment-banking business had investors not complained about biased research reports, according to a transcript of an Aug. 5 deposition released today.

``If you are asking me if these public perceptions had never come up, would we still have made the change, I don't know the answer to that,'' Prince said in the deposition, taken in a lawsuit by Florida investors who claim they lost more than $6 million from an analyst's recommendation for WorldCom Inc.

The plaintiffs in the lawsuit claim they lost their life savings after comments by analyst Jack Grubman led them to buy or hold shares of WorldCom before the long-distance company filed for bankruptcy in July 2002. New York-based Citigroup, the biggest U.S. bank, is still paying a price for its ethical lapses.

Prince, 55, started an internal campaign in February to restore accountability that requires him to tour Citigroup offices around the world. The following month, the U.S. Federal Reserve barred Citigroup from making big acquisitions until it tightened ``compliance and internal controls.''

Citigroup paid $400 million in 2003 to resolve allegations of biased research, the largest share of the $1.4 billion Wall Street settlement. The bank's shares are little changed in the past five years, compared with a 23 percent gain in the Philadelphia Stock Exchange KBW Bank Index. Citigroup's stock closed 19 cents lower yesterday at $48.70 in New York Stock Exchange composite trading.

Acted Sooner

In his deposition, Prince said Citigroup, which then was run by Sanford Weill, should have acted sooner to resolve the allegations of conflicts of interest and scrutinized personal loans to former WorldCom CEO Bernard Ebbers more closely. Weill, 72, is now chairman. Prince succeeded him as CEO in 2003.

``I wish these things had never happened,'' Prince said, according to the transcript, released by Theodore Babbitt of West Palm Beach, Florida-based Babbitt, Johnson, Osborne & Leclainche, a lawyer for the plaintiffs. ``I wish we had never heard of Bernie Ebbers.''

Citigroup spokeswoman Shannon Bell declined to comment on the suit, which includes a deposition by Weill.

By the end of 2002, Citigroup had simplified its stock-rating system, pulled its analysts out of the investment bank and hired Sanford C. Bernstein & Co.'s Sallie Krawcheck as head of research. Weill put Prince, who had been the bank's top in-house lawyer, in charge of Citigroup's securities arm.

Three Ratings

In August of that year, Citigroup said it would use only three ratings -- outperform, in-line and underperform -- to simplify the meaning of its stock picks. Grubman, 52, resigned from Citigroup later that month.

``Prince has acknowledged the conduct of Citigroup and Salomon Smith Barney during the period of 1998 to 2002 concerning WorldCom was wrong and should've been corrected before people like my clients lost all their money,'' Babbitt said.

Among Babbitt's clients are Jack and Elaine Holtsberg, a retired salesman and substitute teacher in Palm Beach County who claim they lost $2 million relying on Grubman's comments, the lawyer said. Another client, former MCI Communications Corp. employee Danny Boles of Okeechobee, claims to have lost $600,000 he invested in that company's stock when WorldCom acquired it in 1998.

Babbitt released a 2002 Citigroup memo in September showing that the bank's analysts were reluctant to publish less-biased research over concerns of a backlash from its investment bankers.

Palm Beach Hearing

John Hoffmann, the former head of equity research at Citigroup's Salomon Smith Barney unit, wrote in a March 2002 memo that the firm's analysts were considering an increase in the number of ``negative'' ratings on stocks. In the same memo, sent to Michael Carpenter, then head of Citigroup's corporate and investment bank, Hoffmann said doing so would threaten more than $16 billion in fees and risk putting the firm at a disadvantage.

Babbitt said the Florida court in Palm Beach County will hold a Dec. 20 hearing to review his request for punitive damages, which may total ``hundreds of millions of dollars.''

The Wall Street Journal reported earlier today that a three- person panel of the U.S. National Association of Securities Dealers rejected a claim alleging misleading stock research on WorldCom by investor Donald Sturm of Colorado. The NASD panel didn't disclose the reasoning behind its decision, the Journal said.