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Regulators Say They Have CSFB 'Smoking Gun'

Oct 7, 2002 | USA Today

Massachusetts securities investigators say they have found the ''smoking gun'' in their case against Credit Suisse First Boston internal documents they say implicate star investment banker Frank Quattrone raising the chances that CSFB could face criminal charges.

The documents, obtained by USA TODAY, are potentially the most damaging evidence to date that research put out by CSFB stock analysts was corrupted by greed for investment-banking fees.

''This is clearly a smoking gun in the area of criminal responsibility, especially as it pertains to Mr. Quattrone,'' says Massachusetts secretary of state and top securities regulator, William Galvin.

Two weeks ago, Galvin said CSFB should be prosecuted for fraud and referred the case to New York Attorney General Eliot Spitzer, who has broader powers to press criminal charges under state laws. The latest documents were uncovered in Galvin's ongoing investigation, which might result in separate civil charges. Spitzer's office says it has not begun to review CSFB documents.

The new documents appear to show that CSFB investment bankers touted biased stock research as a marketing edge in drumming up new clients.

When the firm pitched its services to tech firm Virata in July 1999, the presentation included a graphic that boasted that ''CSFB Stands by its Clients.'' It depicted stock price fever lines showing that its analysts did not cut ratings on a stock despite bad news from a company, while competitors did.

Investigators also found e-mail between Quattrone, co-head of Internet investment banking, and his colleagues that appears to show that an Internet analyst was instructed to resume coverage of Research in Motion maker of BlackBerry pagers after it had paid certain investment-banking fees.

In one exchange, Quattrone and others were told that Research in Motion ''paid us the extra $1.8 (million)'' and should be returned to ''most favored nation status.'' CSFB resumed its coverage with a buy rating.

Through a spokesman, Quattrone declined comment. CSFB said it is ''very confident that after examining the facts, the New York state attorney general will determine that a criminal proceeding is not warranted against the firm or any of its employees.''

CSFB sponsored many of the Internet initial public offerings of the '90s, which often soared as soon as trading began. It is among several firms feeling the backlash now. In May, Merrill Lynch agreed to pay $100 million in a settlement with Spitzer, who also is investigating practices at Salomon Smith Barney and Morgan Stanley.

Regulators in Utah, Texas and Alabama are variously examining practices at Goldman Sachs, J.P. Morgan Chase and Lehman Bros.

Last week, a congressional panel released a report that alleged that Goldman Sachs gave executives special access to shares in Internet IPOs as an inducement for steering investment-banking business their way, making it tough for small investors to get in on the deals.

The Securities and Exchange Commission and stock exchanges are pursuing a settlement with the Wall Street firms aimed at eliminating conflicts of interest in stock research and IPOs.


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