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U.S. Charges Banker Obstructed Justice

He allegedly urged destruction of IPO documents

Apr 24, 2003 | San Francisco Chronicle Frank Quattrone, a former star Credit Suisse First Boston banker, was charged with obstruction of justice by federal prosecutors Wednesday for urging subordinates to destroy IPO documents in the face of a government investigation.

Quattrone is the first investment banker to face criminal charges related to questionable practices in the hot initial-public-offering market during the 1990s technology stock boom.

The 47-year-old Los Altos Hills resident was one of the most successful financiers of his generation. During a 20-year career on the West Coast with Morgan Stanley, Deutsche Morgan Grenfell and CSFB, he took public some of the biggest names of the Internet era, including Amazon.com, Netscape and Cisco Systems. He was paid $100 million per year during the height of his power at CSFB.

Quattrone was charged with three counts of obstructing justice and destroying evidence and surrendered to the FBI in New York Wednesday morning. He was later released by a U.S. magistrate judge on his own recognizance without entering a plea.

His attorney, John Keker, released a statement saying: "Frank Quattrone is innocent. He never obstructed justice." The statement said Quattrone would seek an early trial date.

Quattrone was the head of CSFB's technology banking practice in Palo Alto and lifted the firm from an also-ran to a powerhouse that became the top underwriter of technology IPOs in 1999.

INTENSE, COMPETITIVE

Former employees have described him as an intense, competitive dealmaker with a salesman's flair. Though he worked constantly, friends and detractors alike say he remained approachable and had a good sense of humor.

Despite his immense material wealth, he made few outward displays of it, preferring to wear golf shirts and "drive a beat-up old Jaguar convertible," according to a former employee.

Although his firm took public many now-familiar tech companies, 60 of those that went public between 1998 and 2000 about a third of the total now have stocks that trade under $1.

Eight have declared bankruptcy. CSFB has defended its underwriting standards in the past, saying they are in line with other top firms in the industry.

The charges against Quattrone stem from a series of e-mails he and a subordinate sent at a time when multiple investigations of the firm were under way.

'CLEAN UP THOSE FILES'

On Dec. 4, 2000, a subordinate of Quattrone's sent an e-mail to the entire CSFB tech banking group titled, "Time to clean up those files."

Citing the threat of civil litigation over "broken" tech IPOs, the note went on to remind employees of the firm's policy of destroying all but final versions of deal documents. It said: "That means no notes, no drafts, no valuation analysis, no copies of the road show, no markups, no selling memos no internal memos."

The following day, Dec. 5, Quattrone replied to all of the message recipients, and said: "Having been a key witness in a securities litigation case in South Texas i strongly advise you to follow these procedures."

But as e-mails that subsequently emerged show, Quattrone had been informed of investigations by the Securities and Exchange Commission and a federal grand jury. He had been advised by the firm's lawyers to preserve any documents that might be pertinent to them.

Court documents say that Quattrone began to compose his reply e-mail on Dec.

4 but waited 24 hours to send it.

In fact, the documents say he sent the message hours after being informed by CSFB's general counsel for the Americas, David Brodsky, that the firm had received a grand jury subpoena and that Quattrone should retain his own attorney.

URGED TO COMPLY

The documents also say that Brodsky rebuked Quattrone on Dec. 7 for sending the e-mail, told him that it was "highly problematic, that it posed a risk of creating serious legal and reputational problems for CSFB" and urged him to comply with the investigation in the future.

Quattrone was suspended from CSFB in February, after the firm questioned whether he was truthful in his response to an inquiry by its global general counsel, Gary Lynch, over whether he had known about the investigations when he sent the Dec. 5 e-mail. Quattrone told Lynch he had not been aware of them, but the firm discovered the e-mails showing that he had been told.

Quattrone quit the firm in March after failing to appear for a civil deposition in an investigation by the National Association of Securities Dealers, an industry regulatory agency.

The NASD subsequently charged Quattrone with steering shares of hot IPOs to the personal accounts of corporate executives in the hopes of winning their companies' corporate finance business.

In an affidavit, an FBI agent said CSFB employees, following the e-mail orders, had destroyed hundreds of deal documents that were pertinent to government investigations. Those investigations have since been concluded, and in the case of the federal grand jury, the case was closed with no action taken. CSFB is now trying to restore those deleted files on its computer system.

The SEC fined CSFB $100 million in January 2002 for a widespread practice at the firm in which brokers essentially demanded kickbacks from hedge funds and wealthy individual investors in exchange for hot IPO allocations.

Under securities laws it is illegal for firms to share in the profits enjoyed by its brokerage clients from stock price run-ups.

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