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Ex-CSFB Banker Charged With 'Spinning' Violations

Mar 6, 2003 | Mercury News Frank Quattrone, the former chief technology banker at Credit Suisse First Boston, was charged today by the National Association of Securities Dealers with abuses tied to sales of shares in initial public offerings and analyst research.

A statement issued by the NASD said Quattrone, 47, is being charged with "spinning" violations as well as creating and overseeing a flawed organizational structure that undermined research analyst objectivity. The statement also charged Quattrone with failing to cooperating with the investigation.

Spinning is the practice of awarding shares to the personal accounts of executives in a position to assign investment banking business.

Quattrone has been under fire for more than a month over whether he tried to obstruct a federal investigation by helping to encourage employees to ``clean out'' deal files two years ago.

The key evidence of this allegation revolves around the timing of a December 2000 e-mail message Quattrone sent to employees endorsing a colleague's suggestion to purge company files. Quattrone's e-mail was sent two days after he had learned of a grand-jury probe into the firm's allocations of hot initial public stock offerings. That triggered federal and state criminal probes into whether he was trying to obstruct justice, a charge he denies.

The straw that broke the back of his 23-year career, however, was his refusal last week, on the advice of his lawyers, to testify before an industry regulator, the National Association of Securities Dealers, which has been conducting a separate probe of his activities as a supervisor during the boom.

His lawyers advised him against talking to NASD investigators in order to protect him from creating damning evidence in his criminal case.

That decision not to meet with the NASD left Quattrone vulnerable to being barred by the NASD from the stock-brokerage business, and being fired by Credit Suisse.

Instead, he resigned.

A spokesman for Quattrone, Charles Leonard, said Quattrone is ``sad and disappointed'' to be leaving his colleagues, but ``feels this was necessary so he could apply his full focus to resolving the inquiries and winning his exoneration.''

Focus on e-mail

Quattrone built a reputation for being a master of leading deals called IPOs, for initial public offerings, that financed many fledgling technology companies during the height of the tech boom.

Ironically, after more than a year of being investigated for IPO practices that have been shunned or outlawed in the aftermath of the bubble, Quattrone's downfall at Credit Suisse came not from those accusations. Instead, his departure hinged on his decision to avoid talking to the NASD about the e-mails that endorsed cleaning up files.

Two days before sending that e-mail, Quattrone had learned from the firm's then-general counsel that the firm was under a grand-jury probe into how hot IPO shares were allocated. Such probes are supposed to result in employees' being ordered to preserve documents, not destroy them.

Quattrone's lawyers have argued that he didn't intend to obstruct the probe, partly because he felt the firm's legal department was responsible for alerting employees when documents should be preserved, and partly because he believed any such probe centered on a different branch of the firm its stock-broker employees, not the investment bankers who reported to Quattrone.

Nonetheless, the disclosure of those e-mails last month triggered criminal investigations by state and federal regulators into potential obstruction of justice charges. That made Quattrone reluctant to testify to the NASD, which was in the midst of deciding whether to charge him with failing to supervise certain employees during the tech-stock boom.

Credit Suisse, which put Quattrone on administrative leave last month because of the e-mails, plans to continue paying his legal fees, but he may have to repay them if he's later found to have engaged in wrongdoing, said a person familiar with the matter. Quattrone and Credit Suisse have agreed to wait until after the probes are concluded to decide if he'll get back pay he would be owed under his contract.

Quattrone has long been a lightning rod for controversy because he was known as one of the most aggressive deal makers around, one who secured an unusually lucrative pay package for his technology team from Credit Suisse and one who set up a highly unusual employment structure for his technology banking group.

Under the employment arrangement, stock-market researchers, who were supposed to give unbiased evaluations of companies, reported to him. That system drew intense criticism because research analysts are supposed to provide objective investment advice to investors and not be influenced to favor companies that investment bankers wanted to please.

Rise and fall

Quattrone's group, though, helped turn Credit Suisse from an obscure newcomer into one of the top issuers of technology company stocks, for a time issuing an average of nearly a deal a week.

Credit Suisse stood by Quattrone for years, initially because his Palo Alto-based group was contributing handsomely to the Switzerland-based financial firm's bottom line, and later because he was cleared in several internal and other probes into wrongdoing.

Quattrone also had an extensive employment contract that spelled out in precise detail how he could be fired.

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