Quattrone Faced Questions on Document Destruction in 1991 SuitJul 14, 2003 | Bloomberg
Former Credit Suisse First Boston banker Frank Quattrone, indicted on charges he encouraged colleagues to get rid of documents sought in government probes, faced questioning in a 1991 civil suit about Morgan Stanley's alleged destruction of records, according to court records.
Quattrone was a Morgan Stanley managing director when the bank was a defendant in a suit filed by MiniScribe Corp. bondholders after the disk-drive maker collapsed. In pretrial testimony excerpted in the court records, Quattrone said Morgan Stanley's document policy called for disposing of some material.
Quattrone was indicted in May for allegedly obstructing justice by sending an e-mail urging CSFB bankers to destroy records on the bank's allocation of initial public stock offerings. Prosecutors may try to use Quattrone's testimony from the earlier suit to bolster their criminal case, attorneys not involved in the prosecution said.
``It gives you a glimpse into the mindset of Frank Quattrone at the time he issued the e-mail,'' said Robert Mintz, a former federal prosecutor in Newark, New Jersey, who is now in private practice there. Prosecutors may argue that Quattrone's testimony shows he believed ``document retention policies are in place to get rid of'' troublesome records, Mintz said.
Quattrone, 47, resigned from CSFB in March. His Silicon Valley unit managed the most computer-related stock sales at the height of the Internet boom in the 1990s, generating as much as 15 percent of CSFB's revenue. He has denied the charges in the indictment.
Morgan Stanley, then known as Morgan Stanley & Co., was cleared of wrongdoing in the 1991 suit, which didn't name Quattrone as a defendant. The jury in the Galveston, Texas, case ordered seven defendants, including MiniScribe auditor Coopers & Lybrand, to pay $550 million to the plaintiffs, who later settled for an undisclosed amount.
Quattrone ``was not a target in the case,'' said Robert Chlopak, a Quattrone spokesman. ``He was only a witness, and his company was found not to be liable.'' Morgan Stanley spokesman Mark Lake declined to comment.
The suit was filed after Longmont, Colorado-based MiniScribe went bankrupt in 1990 amid allegations it hid losses and overstated assets. In a separate criminal action, MiniScribe Chairman Q.T. Wiles was convicted of securities fraud and jailed for two years.
The Quattrone indictment, handed down by a federal grand jury in New York, quotes from a December 2000 e-mail in which he alludes to the MiniScribe litigation. In the e-mail, which encouraged subordinates to follow a CSFB policy calling for the destruction of some records, Quattrone wrote: ``having been a key witness in a securities litigation case in south texas (miniscribe) i strongly advise you to follow these procedures.''
The indictment doesn't contain additional mention of the MiniScribe case. Bloomberg News obtained the details in court records on the suit.
Lawyers questioned Quattrone in April 1991 to explore whether Morgan Stanley knew or should have known about the fraud when the bank underwrote a $97.75 million convertible bond offering for MiniScribe in 1987. Quattrone managed the offering.
The attorneys were trying to confirm their suspicions that Morgan Stanley had destroyed pertinent documents, Frank Staggs, a Houston lawyer representing the bondholders, said in an interview. Morgan Stanley turned over fewer documents than expected for a sizable offering that took more than a year to complete, Staggs said.
Staggs's boss, lead lawyer Joe Jamail, questioned Quattrone over two days in a pretrial deposition in Houston. On two separate occasions, he asked Quattrone if the firm had kept documents from the bond offering and MiniScribe's 1983 IPO.
``Is there a document retention policy with regards to how long you keep these documents?'' Jamail asked.
``Our practice is generally to dispose of due diligence notes once they no longer become relevant, which is shortly after an offering,'' Quattrone replied.
```Dispose of' meaning destroy?'' Jamail asked.
```Dispose of' meaning dispose,'' Quattrone said.
``You mean there's no permanent record kept of your due diligence?'' Jamail later asked.
``We probably discarded some stuff,'' Quattrone said.
``Well, discard, destroy. Is there a difference?'' Jamail asked.
``Yes,'' Quattrone said.
The excerpt of the deposition, which was read into the record at the MiniScribe trial later that year, doesn't say whether Quattrone amplified on this point. Quattrone also testified at the trial. The transcript of that questioning was no longer in court files.
Quattrone's testimony was ``the key for Morgan Stanley'' in defending itself against the plaintiffs' allegations, said Andrew Mytelka, another lawyer at the deposition and trial. ``We had little documentary evidence to contradict his story.''