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NASD Plans to File Civil Charges Against CSFB Banker

Jan 31, 2003 | The Wall Street Journal Frank Quattrone, who went from a star investment banker in the technology- stock boom to a prominent figure in the crackdown on Wall Street's excesses, has been told by the National Association of Securities Dealers that it plans to file civil charges against him, Friday's Wall Street Journal reported.

Surprisingly, the charges from the regulatory arm of the NASD include allegations that he failed to supervise Credit Suisse First Boston's technology-stock analysts an unusual role to begin with for Mr. Quattrone, the head of technology banking at CSFB.

But most important, the notice also includes allegations involving Mr. Quattrone's role in the securities firm's allocation of hot initial public offerings to personal brokerage accounts of executives who were also CSFB investment-banking clients. This practice, known as "spinning," has been scrutinized by regulators for five years and recently was outlawed by federal regulators. This would be the first time that regulators planned to charge a Wall Street executive with allegations involving IPO spinning, which was widely criticized for unfairly enriching corporate executives at the expense of small investors who were largely shut out of the IPO game.

The NASD recently disclosed its intention to Mr. Quattrone through a so-called Wells notice, which gives Mr. Quattrone the chance to rebut the claims before the self-regulatory organization decides to take action. The NASD notice involves at least two separate charges. The first would allege that Mr. Quattrone failed to supervise the conflicts between investment banking and research, as well as the allocation of IPO shares, these people say. The second would allege that Mr. Quattrone personally directed some IPO allocations, the people say.

During his tenure, CSFB, a unit of Credit Suisse Group, became a leader in underwriting IPOs of technology concerns. But Mr. Quattrone has been criticized for his use of "Friends of Frank" accounts, in which CSFB allocated hot IPOs to Silicon Valley executives who did banking business with the firm.

The NASD is zeroing in on, among other things, Mr. Quattrone's unusual position as the former head of CSFB's technology analysts, a post Mr. Quattrone demanded when he joined CSFB in 1998, the people said. His dual job highlighted the close ties between investment banking and stock research that regulators say helped lead to conflicts when firms published overly optimistic research to investors on companies that were also paying them large banking fees.

The NASD declined to comment. Mr. Quattrone is also being investigated by New York Attorney General Eliot Spitzer for analysts' conflicts.

Mr. Quattrone said in a statement: "Throughout my 23-year career in investment banking, I have upheld high standards of professional conduct in my work, and have complied with all rules and regulations. CSFB has found no evidence of wrongdoing on my part. I will cooperate with any regulatory inquiry, and am confident that the truth will prevail."

CSFB said in a statement: "As a matter of policy, the firm does not comment on regulatory issues regarding individual employees."

The NASD notice highlights that regulators continue to pursue Wall Street supervisors and other high-profile Wall street executives despite a global settlement over stock research that they reached with major securities firms last month. A move against Mr. Quattrone would mark the third case by the NASD during its recent investigation of conflicts involving Wall Street stock research. In July, the NASD notified former Salomon Smith Barney analyst Jack Grubman that he could face charges for hyping his research on a small telecom company, Winstar Communications. Mr. Grubman has denied wrongdoing.

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