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E-Mails Show CSFB Mulling Deceit

Sep 19, 2002 | AP An analyst at Credit Suisse First Boston used an e-mail to describe a technique called the "Agilent Two-Step," a term for the practice of rating a stock higher than it deserved, to avoid harming other business for the firm.

In an Oct. 12, 2000 e-mail, analyst Tim Mahon describes the technique in which the company maintains an official ranking on the company but "verbally everyone knows your position."

The document was collected by Massachusetts regulators and obtained by The Associated Press on Thursday. It was first described in Thursday's editions of USA Today and The Boston Globe.

Massachusetts Secretary of State William Galvin called the practice "a form of corruption."

"They show a serious case of deceit," Galvin said Thursday. "For us in Massachusetts, using our standards, that's a breach of fiduciary duty."

In an e-mail sent Oct. 11, 2000, CSFB analyst Bhavin Shah wrote to Elliott Rogers, the company's deputy head of technology research, saying he faced "tough decisions" about how to initially rate two companies, United Microelectronics Corp. of Taiwan and Chartered Semiconductor Manufacturing Ltd. of Singapore.

In the e-mail, also sent to Mahon, Shah details several concerns about the company business practices but says they are "clearly the largest revenue accounts of us in Asia."

"I am debating if the first note out ... of black out could be with neutral rating," Shah wrote. "Wondering how to approach this based on banking sensitivities."

Mahon, not Rogers, wrote back: "Suggest you ask Elliot 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." CHRT is the stock symbol for Chartered Semiconductor.

Agilent, previously a subsidiary of Hewlett-Packard, went public in November 1999 at $30 per share, with Rogers giving it a "buy" rating, according to USA Today. Shares were trading at $14.33 Thursday on the New York Stock Exchange.

"In the two years since this e-mail was written, CSFB has enacted systemic changes to strengthen analyst independence," CSFB spokeswoman Victoria Harmon said Thursday. She said the company also continued to work closely with regulators and government officials.

Rogers and Shah have left the company. A woman who answered the phone at Mahon's office Thursday said he was out of the country and unreachable.

Other communications, previously described in media reports, are included in the e-mails assembled by Massachusetts authorities. Included is one from former CSFB analyst Laura Martin to Jamie Kiggen, in which Martin advises Kiggen not to lower numbers on AOL-Time Warner Inc., "even though they can't make them," to avoid angering the company.

Another, from analyst Lise Buyer, apparently sent to an outsider, describes the practice in which some initial public offering shares "are reserved not for friends of the company, but for friends of the investment bank." CSFB has denied that was company practice, but two CSFB executives have been fined $200,000 each for such abuses by the National Association of Securities Dealers, and the firm agreed to pay $100 million to resolve regulators' allegations.

Merrill Lynch has also paid $100 million to settle allegations of conflicts of interest between its research and investment banking businesses.

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