Former CSFB star is charged

U.S. accuses Quattrone of obstructing justice

Shredding, IPO routing probed

Banker `did more damage ... than Milken'

April 24, 2003|By BLOOMBERG NEWS

NEW YORK - Frank P. Quattrone, the former head of Credit Suisse First Boston's technology banking unit, was charged yesterday by federal prosecutors with obstruction of justice in the securities industry's highest-profile criminal case since Michael R. Milken went to prison in 1991.

A three-count federal complaint said Quattrone impeded an investigation into whether he channeled shares of initial public offerings to favored clients. His Silicon Valley unit managed the most computer-related stock sales at the height of the Internet boom, generating as much as 15 percent of CSFB's revenue.

His lawyer, John Keker, said Quattrone is innocent of wrongdoing.

With the collapse of technology stocks, Quattrone "did more damage to investor confidence than Milken," said Frank Partnoy, a University of San Diego law professor and author of Infectious Greed. Milken was a Drexel Burnham Lambert executive convicted of using junk bonds to commit securities fraud.

"Quattrone was the central player and the highest-paid participant" in the market, Partnoy said.

The National Association of Securities Dealers, the securities industry's watchdog, has demanded that Quattrone return $200 million that it said he earned between 1998 and 2001. Quattrone, who supervised technology research and technology share sales, quit the firm two days before the NASD's claim March 6 that he was blocking its probe into IPO sales.

Quattrone became the first Wall Street executive to be charged with committing a crime in the investigations that began in 2000 into industry misconduct.

Quattrone surrendered to the FBI at 8 a.m. in New York. In a five-minute appearance in U.S. District Court in Manhattan, Magistrate Theodore Katz released him on personal recognizance, required him to surrender his passport, and barred him from traveling outside the United States. He didn't enter a plea. Quattrone faces a maximum sentence of 10 years.

"The charges are wrong and they are unfair," said Keker, who also represents former Enron Corp. Chief Financial Officer Andrew S. Fastow.

The federal charges stemmed from Quattrone's advice to colleagues in late 2000 to destroy documents as investigators examined whether clients of CSFB, so-called "Friends of Frank," were awarded sought-after shares from IPOs ahead of other investors.

"The investigation has revealed that numerous CSFB documents were destroyed," FBI official Kathleen Queally said in the complaint.

In January CSFB discovered a Dec. 3, 2000, e-mail in which then-general counsel David Brodsky informed Quattrone that the firm was under investigation by securities regulators and federal prosecutors. The e-mail contradicted Quattrone's earlier statement that he was unaware of the probe when he told employees Dec. 4, 2000, to dispose of documents related to initial offerings.

"This is a high-visibility case and a strong case," said James Cox, professor of corporate and securities law at Duke University Law School. "Quattrone had to be sitting there waiting for the knock at the door."

Regulators are completing this week a $1.4 billion settlement reached in December with 10 securities firms, including CSFB, accused of producing biased stock research. Some analysts, such as former Citigroup Inc. analyst Jack Grubman, face civil litigation.

Credit Suisse agreed to pay $100 million in January 2002 to settle charges related to claims that it took kickbacks in distributing IPO shares. The Securities and Exchange Commission said the firm charged commissions of as much as $3.15 a share, compared with a typical rate of 6 cents.

CSFB, Goldman Sachs Group Inc. and other investment banks may have to pay as much as $3.5 billion to settle lawsuits accusing them of rigging IPOs, according to a report this week by Sanford C. Bernstein & Co. analyst Brad Hintz.

More than 50 investment banks are being sued by shareholders of 309 technology companies. The Nasdaq composite index has declined 70 percent from its March 2000 peak.

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