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CSFB Puts Quattrone On Leave Amid Probe

Feb 4, 2003 | The Boston Globe

Credit Suisse First Boston yesterday suspended Frank Quattrone, director of the firm's Global Technology Group and a one-time Silicon Valley power broker, as questions swirled about whether he encouraged employees to obstruct criminal and regulatory investigations by destroying documents.

CSFB, the investment banking arm of Switzerland's Credit Suisse Group, said it placed Quattrone on paid administrative leave pending the outcome of an internal investigation. The Wall Street firm said it made the decision based on information it learned Friday about an e-mail Quattrone sent to his group in December 2000, and that it will cooperate with government and regulatory authorities as they look into the case.

A CSFB spokeswoman yesterday declined to comment beyond an official company statement. In it, CSFB said that "following these December 2000 e-mails regarding document retention, the firm's legal department acted promptly to ensure that all relevant documents would be preserved and provided to authorities."

The announcement came five weeks after CSFB agreed to pay $200 million to end a federal and state investigation of its investment banking practices during the dot-com boom of the late 1990s. The firm also paid $100 million in January 2002 to settle charges by federal securities regulators that it had charged companies inflated trading commissions in exchange for access to lucrative shares of initial public offerings.

Quattrone's team of 120 investment bankers and research analysts, based in Palo Alto, Calif., was a focus of both investigations. Published reports last week indicated that the National Association of Securities Dealers is preparing civil charges against Quattrone.

Before the series of recent scandals Quattrone and his group were credited in many quarters with transforming CSFB from a second-tier investment bank into a high-tech powerhouse that underwrote many of the hottest initial public offerings of the Internet boom.

Two years after receiving his MBA from Stanford University, the Philadelphia native set up shop in Silicon Valley in 1983 for Morgan Stanley, becoming one of the few East Coast bankers staking his reputation on the budding high-tech industry. With a close network of business school classmates, venture capitalists, and entrepreneurs, who later became known as "friends of Frank," Quattrone helped Morgan Stanley compete with the boutique West Coast firms on the high-tech deals that many East Coast banks were ignoring. One of his most high-profile deals was the IPO for Cisco Systems Inc. in 1990.

He left Morgan Stanley for the German bank Deutsche Morgan Greenfell in 1996. His new division, the Deutsche Bank Technology Group, won the sought-after underwriting deal for Amazon.com's IPO the following year. In 1998, just before the Internet market exploded, CSFB hired Quattrone to run its high-tech group, and most of his former colleagues at Deutsche Bank defected with him.

"That immediately put CSFB on the elite tables, no question about it," said Eric Ross, the director of electronics research for Investec, who was then working in San Francisco for Nations Bank/Montgomery Securities. "They were really a force."

"I did nothing wrong," Quattrone said yesterday in a statement. "I am confident that the investigation will show that."

But Massachusetts Secretary of State William F. Galvin, who oversees the state Securities Division and who led the multistate regulatory task force that led to the $200 million December settlement, questioned the claims of both Quattrone and his employer.

Galvin said his office questioned CSFB about the relevant e-mail messages more than two months ago during settlement talks. He said the firm suspended Quattrone yesterday not because of what he did or because of anything it found out Friday but because the series of December 2000 e-mail messages became public only last week in a series of published reports.

"The idea that they did not know about it until Friday is simply not true," Galvin said. "It raises anew the question of how committed the firm is to changing the culture, as opposed to just dealing with the bad publicity created by it."

Yesterday's actions stem from a Dec. 4, 2000 e-mail message from three of CSFB's investment banking executives to the firm's technology team with the subject line, "time to clean up those files."

In the message, the executives wrote that, "with the recent tumble in stock prices, and many deals now trading below issue price, the securities litigation bar is expected to [initiate] an all-out assault on broken tech IPOs." They then advised employees to clean out the files as quickly as possible following each transaction.

"That means no notes, no drafts, no valuation analysis, no copies of the roadshow, no markups, no selling memos, no IBC or EVC memos, no internal memos," the messages said.

One day later, Quattrone resent the message to his team with a note from himself at the top. "Having been a key witness in a securities litigation case, I strongly advise you to follow these procedures," he wrote.

CSFB said that it initiated an internal investigation into the e-mails last Wednesday, and that Quattrone indicated he had no knowledge that a federal securities regulation was already underway in December 2000. But on Friday, the company said, it learned that its own general counsel, David Brodsky, had sent Quattrone a message about the securities probe on Dec. 3, before the message from the other three executives was sent.

It was that Dec. 3 memo that was the reason for the suspension, CSFB said, and insisted that Massachusetts regulators did not have a copy and that it did not come up during settlement talks last year.

Contacted last night, a securities investigator who worked on the case last year could not confirm that the Dec. 3 memo specifically was part of the settlement talks. But he said "it's incomprehensible" that CSFB claims to have just now discovered the document after two years of intensive internal and external scrutiny.

In any case, the messages are only the latest in which Quattrone's blunt style may come back to haunt him, and CSFB.

In November 2000, Quattrone sent an e-mail message asking one of his analysts about the decision to initiate research coverage of Agile Software Corp.

"What have we extracted from them on banking side to get this coverage?" Quattrone asked in what investigators considered a "smoking gun" piece of evidence about the lack of separation between investment banking and stock research.

Another e-mail exchange obtained by regulators showed the CSFB technology banking chief asking his analysts to return Research in Motion Ltd. to "most favored nation status" once the handheld computer maker had paid Credit Suisse what Quattrone considered to be enough in investment banking fees.

"This is all about restoring credibility," Galvin said. "If Massachusetts investors hear a buy recommendation from an analyst, they should at least know it was objective, honest evaluation. Our investigation showed that CFSB's first interests were only in profits. Now it appears they even put profits of the company ahead of the legal system."


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