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Dov "Dubi" Moran and Ronit Maor, the CEO and chief financial officer of M-Systems, felt like they had been stabbed in the back. Four months ago they had inked a fat seven-digit check for Citigroup for leading the high-tech company's latest Wall Street offering.

In the offering, M-Systems raised $120 million, from which a hefty 5 percent chunk went straight to the underwriters as usual - to Citigroup, HSBC, UBS, CIBC, CE Unterberg Towbin, and Thomas Weisel Partners. From the moment Citigroup was chosen to lead the offering, it became an ally. And the hefty fees it received for the offering made it a particularly dedicated one. So went the theory.

M-Systems has many friends on Wall Street. Ten investment banks cover the company, some more warmly than others but most rate it a Buy. Then came the bolt from the blue. Citigroup analyst Sally Crawcheck published a report on M-Systems with the astonishing recommendation - Sell! Just like that, sell the stock.

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Sell recommendations have become more common on the street this last year. The serial scandals that rocked the analysts' insular world forced them to adopt more gravitas and to abandon their tilt toward the companies. But a Sell recommendation after cashing the check by an analyst who led a company's offering four months before, is not common at all.

When a company hires an investment bank to lead an offering for it, the company expects assistance in selling the shares at the launch and afterward, too. It expects the investment bank to support, market and distribute the stock on the secondary market.

Naturally, there is no written agreement to that effect between the company and the bank, but everybody knows perfectly well what their job is. The company's job is to cut fat checks. The investment bank's job is to provide upbeat coverage. So what happened between Citigroup and M-Systems?

Sources close to the flying fur yesterday claimed the reason for the Sell is that a new analyst came on board. He had no personal relationship with the company, hadn't been involved in its offering, held a negative opinion of its sector and, in short, wrote a downbeat report.

It could be. But a year or two ago the chances of a snag like that arising were non existent. Most analysts at the investment banks knew there was a coterie of companies they had better cover positively - namely, the companies that were clients of the investment bank that employed them, and even more importantly, the companies which the investment bank had floated.

Most analysts customarily delivered their equity research reports to the investment banking division, from where they would meander to the management of the covered company.

If the management had reservations, the analyst would get a call pointing out his mistakes. At the end of the process the chastened analyst would usually understand how he got it wrong, and would mend his ways. And his report.

Gallows shadow

But something has changed on Wall Street in the last year. The bad press, the trials, the arrests and the heavy fines changed the industry. Analysts are no longer de facto slaves of the investment banking division. They are no longer directly rewarded for their "help" to their investment banking colleagues, whose job is to aggressively sell shares.

Citigroup itself underwent a vast change in that respect. Sandy Weill, its legendary chairman, had found himself at the center of a swirling investigation because of the patently ludicrous recommendations of the company's telecoms analyst, Jack Grubman.

The New York State prosecutor, Eliot Spitzer, found a fascinating exchange of emails between Grubman and Weill that cast a highly unflattering light on the ethics of the Citi analysts and on Weill's own involvement. And the latter began to feel the noose tightening around his neck.

Weill badly wanted to show Spitzer and Wall Street that Citigroup was mending its ways, and he made a dramatic announcement - that the institution was completely severing its research and investment banking divisions. From now, research would be on its own.

To prove the seriousness of his intent, he placed Sally Krawcheck at its top, she previously having headed Sanford Bernstein, one of the few Wall Street companies considered to have provided genuinely objective analytical opinions.

Price of honesty

Krawcheck had come to symbolize probity on Wall Street thanks to a Fortune magazine article describing her as the most honest analyst on Wall Street. And that was what Weill wanted, an icon of virtue. He gave the young lady a $20 million contract, placed her at the top of the independent research division and gave her the green light to introduce a new animal to a jaded Wall Street - objective research.

And the results of that chain of events culminated in a blow that slammed Dov Moran and Ronit Maor in the teeth. The Citi report sent M-Systems stock plunging 10 percent. Its shares are trading 25 percent below the level they were issued four months ago.

The real million-dollar question, though, is how long Krawcheck and the other research department managers on Wall Street can sustain their "objective analysis." As you read, all the managers of all Israeli companies on Wall Street are reading the story of Citigroup virtuously proving its objective mettle. Their hair is standing on end, and they are snorting, "I'm never going to do business with those guys."

In other words - it isn't clear yet which business model will prevail, the one based on ruler-straight objective analysts who really have the investors' best interests in mind, or the one where analysis a merely a tool to push stocks to suckers while charging fat fees in the process.