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NASD Regulators Charge Quattrone

Investment banker is accused of 'spinning' coveted IPO shares and improper oversight of stock analysts.

March 07, 2003|Walter Hamilton | Times Staff Writer

Silicon Valley investment banker Frank Quattrone, who was forced out of Credit Suisse First Boston this week amid government probes of his actions, was charged Thursday by securities regulators with abuses related to his oversight of stock analysts and handling of initial public stock offerings.

In documents describing their allegations, regulators made public new details about Quattrone's alleged knowledge of government investigations at the time he sent a Dec. 5, 2000, e-mail urging his staff to purge IPO-related documents. Prosecutors are studying that e-mail to determine whether to bring criminal obstruction-of-justice charges against Quattrone.

The new information was contained in twin complaints filed against Quattrone by the NASD, formerly known as the National Assn. of Securities Dealers, which regulates the securities industry.

According to the NASD complaints, shortly before Quattrone sent the December 2000 e-mail, he spoke by phone with CSFB's then-general counsel, David Brodsky. They discussed a federal grand jury subpoena seeking IPO information from CSFB, and Brodsky advised Quattrone to hire an attorney.

Four minutes after he sent the e-mail, NASD documents say, Quattrone was told by a subordinate that the NASD had ordered the firm to preserve all documents for use in a probe begun that April. Despite that, Quattrone did not send an order rescinding his earlier instructions, the NASD said.

In addition, Quattrone was informed of the existence of government IPO probes much earlier than previously reported, according to the NASD.

Quattrone learned as early as June 2000 of an NASD inquiry, and was told then to preserve all documents, according to the complaints. He learned in September 2000 of a parallel Securities and Exchange Commission probe. He was informed about the grand jury Dec. 3, two days before he sent the e-mail about purging IPO documents, the NASD said.

It previously had been reported that Quattrone had learned of all three probes Dec. 3.

In a statement, Quattrone's attorney, Howard Heiss, denied any wrongdoing by Quattrone.

"The NASD charges are completely without merit," he said.

Quattrone, 47, was a premier investment banker in the late 1990s. But the probes have brought his actions under intense scrutiny.

He resigned from CSFB under pressure Tuesday after refusing to testify before the NASD. As a result, the NASD said Thursday that it was seeking to bar him from the industry for life.

Among other things, the NASD is accusing Quattrone of doling out shares of coveted IPOs to corporate executives in exchange for lucrative financing work for CSFB.

Such "spinning" was common on Wall Street in the 1990s, but took "a uniquely aggressive form" under Quattrone, the NASD alleged.

The IPO shares amounted to "large cash gifts" to clients or prospective clients, a practice barred by the NASD.

The NASD also charged Quattrone with improper oversight of stock analysts, and with setting up a system that encouraged them to talk up stocks to lure business.

In a highly unusual arrangement, tech analysts reported to Quattrone, who headed tech investment banking in CSFB's Palo Alto office, rather than to the stock research chief.

Quattrone's tech bankers sometimes promised favorable research coverage of companies that hired CSFB, the NASD said.

Quattrone's attorney said his client complied with standard industry practice.

The NASD charges "represent an unprecedented attempt to take punitive action against an individual for conduct that was legal at the time and widespread throughout the industry," Heiss said.

Heiss added that CSFB's management approved the system in which analysts reported to Quattrone. A CSFB spokeswoman declined to comment.

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