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Regulators Prepare To Question Quattrone

Dec 11, 2002 | FT.com

Massachusetts securities regulators' efforts to question Frank Quattrone and other leading Credit Suisse First Boston executives as part of their probe into Wall Street's conflicts of interest are heating up.

Massachusetts has informed Mr Quattrone through CSFB that he must appear on January 13 to answer questions about alleged misconduct in the CSFB technology investment banking group he heads.

The formal deposition is part of the endgame in broader settlement talks with Wall Street's leading investment banks, which could result in huge fines and an overhaul of the way banks do business, and it may be a tactic to increase pressure on CSFB before a deal is reached.

Still, it has raised questions about the banker's fate just months after CSFB had appeared free of regulatory problems.

William Galvin, the Massachusetts secretary of state, has filed a civil suit against CSFB, accusing Mr Quattrone's tech group of overly optimistic stock research and handing initial public offerings to executives to win investment banking business.

Mr Galvin has also referred evidence against the group to New York attorney general Eliot Spitzer and the US Attorneys Office to consider possible criminal charges. More ominously, regulators have hinted they will pursue cases against individual executives after they conclude the broader settlement.

There are questions as to whether Mr Quattrone, arguably the most prominent banker of the tech bubble, will survive the crusade inspired by its collapse.

He would be one of the largest names to fall, alongside Jack Grubman, the former telecoms analyst, who resigned from Salomon Smith Barney under pressure in August.

CSFB has declined to comment, but for the moment, Mr Quattrone is going about business as usual and in spite of trimming staff by half, CSFB's tech group is still the leader in Silicon Valley. "There isn't anyone with a better understanding of this business," a prominent venture capitalist said.

CSFB snatched Mr Quattrone and his team from Deutsche Bank five years ago, luring them with an unusual deal that gave the tech share of its own revenues.

But other elements of the deal are now drawing scrutiny. Most notably, Mr Quattrone was given oversight of the tech group's analysts, controlling coverage and determining compensation.

Massachusetts regulators argue that this led to a culture in which analysts did bankers' bidding. In one email uncovered by investigators, Mr Quattrone asked a research analyst about to initiate coverage of a company what investment banking business had been "extracted" in return.

"The system worked as they wanted it to work, so that analysts served investment banking," one investigator said. "Quattrone knew, or should have known."

CSFB notes that it never received any banking business from the company in question, Agile Software.

Mr Quattrone's regulatory problems seemed safely behind him this time last year. In November, he was pronounced clean by John Mack, then newly installed chief executive, after an internal probe into IPO abuses in the division.

Not only did Mr Mack publicly attest to the banker's good ethics, but also promoted him to the management committee.

A month later, the tech group's problems appeared to be resolved when prosecutors declined to pursue criminal charges, letting the bank off with a $100m civil settlement in which it admitted no wrong-doing.

CSFB has dismissed the Massachusetts complaint as "flawed" and "riddled with factual mistakes".

That may be so and it is far from certain that state or federal regulators will pursue Mr Quattrone. But even if they do not, the current scandal is taking a toll on banker and firm.

CSFB may have to pay as much as $250m as its portion of the global settlement, according to people familiar with the negotiations, and possibly several times that amount to deal with resulting class-action lawsuits filed by investors. It is likely Mr Quattrone will be tied up with legal matters for years.


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