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Credit Suisse First Boston May Face State Charges

Oct 21, 2002 | Wall Street Journal

Massachusetts state securities regulators plan to file civil fraud charges against Credit Suisse First Boston, intensifying the scrutiny of alleged conflicts that may have tainted the firm's technology research under investment-banking star Frank Quattrone, Monday's Wall Street Journal reported.

The administrative charges by William Galvin, secretary of the Commonwealth of Massachusetts, could come as early as today after settlement talks with CSFB reached an impasse. The state has demanded a complete separation of the firm's research from its investment-banking business, and the two sides have discussed a possible fine of $100 million, according to people familiar with the talks. A spokesman for Mr. Galvin declined to comment Sunday.

But in an unusual last-minute public appeal, CSFB's global general counsel, Gary Lynch, urged Matthew Nestor, the head of Mr. Galvin's securities division, to hold off on any action. Mr. Lynch said the move "threatens to undermine the efforts" toward an industrywide settlement under discussion between a coalition of other federal and state securities regulators and a dozen major Wall Street securities firms to put more distance between research and investment banking. But the Massachusetts officials appear determined to go ahead with the filing.

The action would be a new blow to CSFB, which already agreed to pay $100 million in January to settle charges by the Securities and Exchange Commission and National Association of Securities Dealers that the firm's brokers charged excessive commissions to hedge funds in exchange for allocations of hot initial public offerings. CSFB neither admitted nor denied wrongdoing.

The firm's parent company, Credit Suisse Group (CSR), also recently ousted its former chief executive officer, Lukas Muhlemann, after a series of strategic missteps during the global stock-market downturn of the past two and a half years. A steep drop in the stock price of the Zurich-based group has even prompted rumors that CSFB itself may be sold.

Massachusetts has referred its findings to New York State Attorney General Eliot Spitzer for possible criminal charges under New York's Martin Act, which allows criminal sanctions without proof of intent to commit a crime.

The general nature of the expected charges by Massachusetts regulators has been aired in published reports detailing internal CSFB e-mails and presentations to clients. That material indicated that technology analysts felt pressure to produce more-favorable research reports on CSFB's investment-banking clients. The charges are also based on interviews with former CSFB employees.


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