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CSFB E-Mails Suggest Tainted Ratings

Sep 19, 2002 | USA Today Internet analysts at Credit Suisse First Boston called it the ''Agilent Two-Step'', that's when they would rate a stock a ''buy'' while secretly telling large investors their true opinion, according to e-mails uncovered by Massachusetts securities regulators.

The e-mails, regulators say, are just the latest sign that stock research at CSFB was tainted by its need to attract investment-banking business.

''The discoveries keep coming, and they keep getting more and more amazing,'' says William Galvin, secretary of State for Massachusetts and the chief securities regulator.

Investigators in Massachusetts appear to be finding many of the same practices that New York authorities found at Merrill Lynch, which in May agreed to pay $100 million to settle charges that its analysts recommended stocks they didn't really believe in. Massachusetts investigators have found CSFB e-mails that describe how:

Analysts felt pressure to positively rate investment-banking clients.

The firm gave executives who hired CSFB for investment banking access to initial public offerings.

Frank Quattrone, CSFB's star Internet investment banker, tried to keep control of the stock research team.

However, the latest e-mails, written in October 2000, are particularly alarming to regulators because they were sent directly to Elliott Rogers, head of technology research for CSFB.

In one e-mail, analyst Bhavin Shah said he was facing some ''tough decisions'' on rating Chartered Semiconductor (CHRT) and United Microelectronics (UMC), two companies CSFB helped take public. Shah said he wanted to give UMC a ''neutral'' rating but was ''wondering how to approach this based on banking sensitivities.''

Analyst Tim Mahon responded to Shah and Rogers, ''Suggest you ask Elliott about the 'Agilent Two-Step.' That's where in writing you have a buy rating (like we do on CHRT, and thank God it's not a Strong Buy) but verbally everyone knows your position.'' Rogers, an analyst when CSFB took Agilent public in 1999 at $30 a share, initiated coverage with a ''buy.'' Agilent shares rose at first, then fell steadily to $14.75 Wednesday.

Galvin says the e-mails are ''compelling evidence of deceit, and this is not an isolated incident. Apparently, it was a policy of deceit practiced on investors. And given the fact that they were sent to Elliott Rogers shows it clearly goes to the highest level.''

But CSFB says it has fixed the problem. ''In the two years since this e-mail was written, CSFB has enacted systematic changes to strengthen analyst independence,'' spokeswoman Victoria Harmon says. ''We also are working closely with the regulators and government officials on these matters.''

Rogers has left CSFB and couldn't be reached for comment. Mahon and Shah also couldn't be reached for comment.

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