NEW YORK (CNN/Money) - The regulatory arm of the National Association of Securities Dealers (NASD) said it has informed Salomon Smith Barney's telecom analyst Jack Grubman that the agency is looking into why Grubman kept a "buy" rating on shares of the now-bankrupt competitive local exchange carrier Winstar Communications Inc. as its financial difficulties mounted.

The probe is an escalation of enforcement efforts against biased research for the NASD, which in May censured and fined a small New York-based securities firm for misleading stock research.

Grubman, 49, is a more high-profile target whose comments used to move stock prices. Winstar, a former Wall Street darling and Salomon investment banking client, reached around $10 billion in market capitalization in 2000 before losses mounted and its debt ballooned as the stock market tumbled.

A spokeswoman for Salomon Smith Barney, a unit of Citigroup (C: Research, Estimates), told CNNfn "We will cooperate fully with any inquiry. Mr. Grubman's calls on Winstar were part of a consistent and reasonable investment thesis developed and held in good faith for many years. There was certainly no intent to mislead investors. Mr. Grubman continues to be an active member of the firm's research team."

The company did not confirm that it received any notification from the NASD, however.

The U.S. attorney general for the Southern District of New York is also investigating Grubman, the Wall Street Journal reported late Monday.

In recent testimony before a Congressional panel investigating WorldCom's accounting practices, Grubman told members he earned about $20 million in annual pay over the last several years and that some of his compensation involved helping the firm land investment banking deals.

Many Wall Street analysts are being investigated for boosting stocks of favored companies to inflate their own pay as they helped investment banking colleagues win lucrative deals. New York Attorney General Eliot Spitzer's probe of Merrill Lynch's research practices, which led the bank in May to agree to pay a $100 million fine, has prompted other regulators and prosecutors to launch inquiries into analyst research.

Salomon Smith Barney earned about $10 million in banking fees from Winstar Communications, according to the Wall Street Journal, citing Thomson Financial Securities Data.  

-- from staff and wire reports