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Quattrone List Spurs Envy, Not Shame

Mar 8, 2003 | Mercury News

The ``Friends of Frank'' network says something about Silicon Valley that escaped industry regulators.

It's nothing admirable. It's nothing we would readily confess. It is very human. Among techies, the dominant reaction to the news that 63 friends of banker Frank Quattrone made big IPO gains wasn't shame. It was envy.

Which is to say that the detailed chart the Mercury News published Friday about the potential profits of the Friends of Frank evoked this reaction first at breakfast tables in the valley: How did he or she get more than I did?

How can I prove this? I can't. I have no scientific evidence. And I would bet there are more than a few ordinary investors who are incensed that the insiders got such sweet risk-free deals.

As I read through the list and talked to people Friday, though, two things occurred to me. First, our sense of shame is less than our greed. And our greed is less than our yearning for a place of honor in the pecking order.

My proof is anecdotal. One venture capitalist joked that his kids' middle-school principal will use the list as a fundraising tool. A tech executive confessed to jealousy as he e-mailed the list to dozens of his friends. A prominent investor wondered who didn't make the list. The buzz far outweighed any outrage.

You can bemoan this with reason. The NASD, formerly the National Association of Securities Dealers, made an eloquent case that there were victims to the ``spinning'' Credit Suisse First Boston elevated to a high art. In their view, companies left money on the table by selling their IPO shares too cheaply.

Nobody suffers illusions about what went on here. With some precision, Credit Suisse used the friends' accounts to reward executives who delivered investment banking business. The bigger the business, the more the reward.

The curious ethics of Silicon Valley in fact, the ethos of the place lend Frank's Friends a half-dozen easy rationales for taking the money. The refrain went this way:

Sure, it's back-scratching. But it's not really so different from the deals that happen every day in business. When a company awards a favored customer a box at the Sharks' game, is the morality purer?

Spinning is standard practice among investment banks cultivating their business. It didn't affect our judgment of which bank was best.

It wasn't really that much money, at least not compared to the wealth created in IPOs.

Was a couple of million dollars really that much to Mory Ejabat, the former chief executive of Ascend Communications, which was sold to Lucent in 1999 for $25 billion with Frank's help? Nah. It's easy to argue that it was Ejabat's tip money.

Nope. If there was outrage at the publication of the list, it was that some people got rewarded more than others.

The executives who had IPOs in 2000, for example, weren't able to participate in the hot issues of the year before. And the largesse generally extended to only one or two people at each company.

(One exception was, where word of the Friends' accounts was passed around and 12 employees signed up. The payoff there was a more democratic affair).

While Quattrone has lost his job and faces a variety of investigations, it's all but inconceivable that regulators will come after the Friends themselves. Down deep, there's a wary pride in being on the list. After all, they deserved it, didn't they?

You want shame? However richly it's deserved, you won't find much of it in the corridors of tech. In Silicon Valley, we don't oppose special privilege as a concept. We just want a piece of it for ourselves.

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