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CSFB Sidelines Group Leader Amid Probe

Feb 3, 2003 | AP

Credit Suisse First Boston placed the head of its global technology group on administrative leave Monday after an internal probe found he may have known regulators were eyeing his firm when he told his staff to "clean up" their files two years ago.

CSFB revisited the matter with Frank Quattrone last week, when it uncovered an e-mail exchange between the star investment banker and former in-house legal counsel David Brodsky, people close to the situation said. The messages were found Friday, as The Wall Street Journal reported that the National Association of Securities Dealers was considering action against Quattrone on other issues.

The Dec. 3, 2000 exchange about a pending grand jury meeting on the firm's sale of initial public offering shares seemed to contradict Quattrone's earlier assertion that he did not know regulators were investigating CSFB when he e-mailed his staff a day later, the people said.

Quattrone's e-mail, sent to the technology banking group Dec. 4 with the subject line, "Time to clean up those files," reiterated the company's policy about discarding old files and documents and advised employees to "catch up on file cleanup" before they left for the holidays, the people said.

The message was characterized at the time as routine, they said. But any pending investigation would have precluded CSFB employees from destroying documents. The firm's legal department sent more e-mail on Dec. 6 and Dec. 7 telling employees not to destroy IPO-related documents.

Quattrone, contacted by CSFB lawyers over the weekend, said he did not recall the e-mail from Brodsky, the people said.

In a statement Monday, the firm said this new information raised questions about Quattrone's response to the internal inquiry, and about whether he acted appropriately when the e-mail was sent or was aware of the pending investigations.

The investment bank said its legal department had acted at the time to ensure all relevant documents were preserved and provided to authorities, and said it was continuing to cooperate with regulators.

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

Calls to Quattrone's lawyer were not immediately returned.

Separately, Quattrone, has been notified that the NASD is considering charges that he failed to prevent conflicts of interest that occurred when analysts issued favorable research reports on companies that were investment-banking clients of CSFB, sources close to the situation confirmed Friday.

As an investment banker, Quattrone, 47, had the unusual position of leading CSFB's team of technology stock analysts.

The NASD also alleges Quattrone was involved in distributing IPO shares to Silicon Valley executives so-called "Friends of Frank" whose companies did investment-banking business with CSFB, the sources said.

The practice, known as "spinning," recently was outlawed by federal regulators. Critics have said it gave corporate executives an unfair advantage in the lucrative IPO market while shutting out small investors.

The notice gives Quattrone a chance to rebut the claims before the NASD takes action. Sanctions by the NASD can include civil fines and even exclusion from the securities industry.

Regulators have taken several steps against firms and individuals for alleged violations of IPO share sales during the tech boom. CSFB agreed in December 2001 to pay $100 million to resolve charges of abuses in its distribution of IPOs.

CSFB was also among nearly a dozen Wall Street firms that agreed last month to pay a total of $1.4 billion to settle claims they misled customers with biased stock research. CSFB's portion is $200 million.

The NASD, the Securities and Exchange Commission and New York Attorney General Eliot Spitzer have targeted Wall Street firm abuses and conflicts of interest that have rattled investor confidence.

Spitzer, who negotiated the industrywide settlement, also is investigating Quattrone for possible stock-research conflicts. Massachusetts Secretary of State William Galvin examined Quattrone as part of an investigation into biased stock research and has not ruled out further action against him.


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