According to the aggrieved investors, Grubman reversed his previously somewhat negative rating on AT&T stock as part of a series of personal and professional favours granted by former Citigroup chairman Sanford Weill, AT&T chairman, Michael Armstrong and Mr Grubman himself.

In their motion to dismiss, the defendants suggested that the case should be invalidated because the AT&T investors had merely alleged that the analyst's actions artifically inflated the firm's stock price, an accusation which was considered insufficient evidence that the situation directly caused their losses.

However, Judge Lynch was quoted by the New York Law Journal this week as observing that the investors had not merely rested their case on "allegations of artificial price inflation as the sole explanation for their claimed losses; in contrast to defendants' characterization, plaintiffs do set out a causal chain linking their losses to the alleged fraud."

He went on to add:

"Plaintiffs have painted a disturbing picture of the atmosphere at SSB with allegations that, if true, make out a strong case that conflicts of interest there may have provided a motive for analysts to issue research reports that were more positive than their truly held opinions would dictate."