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Mass. Regulators Cite 'Smoking Gun' In CSFB Investigation

Oct 8, 2002 | Boston Business Journal

Credit Suisse First Boston e-mails and documents show a "smoking gun" on conflicts between technology banking chief Frank Quattrone and the firm's stock analysts, Massachusetts' top securities regulator said.

Massachusetts regulators uncovered e-mails to Quattrone in March 2001 concerning a "return to most favored nation status," for Research In Motion Ltd., after the Waterloo, Ontario-based maker of Blackberry pagers paid $1.8 million in banking fees.

"CSFB stands by its clients," read a pitch for Virata Corp.'s initial public offering showing Credit Suisse was more bullish on companies whose share sales it handled than rivals Goldman Sachs Group Inc. or Morgan Stanley Co.

The documents show that Quattrone, who had oversight of technology research until June 2001, used analyst recommendations to win banking business, said William Galvin, Massachusetts' secretary of state and its top securities regulator. The documents were handed over to New York Attorney General Eliot Spitzer. Spitzer in May reached a $100 million settlement with Merrill Lynch & Co. over conflicts of interest in research.

"The exchange clearly indicated there was a quid quo pro between banking and analysis," Galvin said. "It clearly violates their fiduciary duty they were not giving good faith advice; it was corrupted by their effort to garner investment banking business."

Credit Suisse handled Virata's IPO in November 1999 and a secondary offering of shares on July 2000. The firm also advised on the semiconductor firm's sale in October 2001 to form GlobespanVirata Inc. Bob McMullan, a spokesman for GlobespanVirata, didn't return calls to Bloomberg Business News.

Galvin, who doesn't have the power to pursue criminal charges himself, has asked Spitzer to pursue criminal charges.

"We are very confident that after examining the facts, the New York attorney general will determine that a criminal proceeding is not warranted against the firm nor any of its employees," said Victoria Harmon, a spokeswoman for CSFB.

Credit Suisse analyst Timothy Long initiated coverage of Research In Motion with a "buy" recommendation in December. He switched his recommendation to "hold" on May 21 when the shares had fallen 55 percent from their level a month earlier. He is now "neutral" on the shares, while 11 analysts recommend investors buy the shares, according to Bloomberg data.

Research In Motion spokesman Scott Pollard didn't immediately return a call from Bloomberg seeking comment. In an e-mail to Quattrone, CSFB executives said the company had paid banking fees to CSFB, and the firm would resume full analyst coverage.

A message left at Quattrone's office in California wasn't immediately returned. Calls to Credit Suisse spokeswoman Busy Burr in Palo Alto, Calif., weren't immediately returned.

The U.S. shares in Credit Suisse Group, the Zurich-based parent of Credit Suisse First Boston, have fallen 68 percent this year.

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