The NASD has told Frank Quattrone, Silicon Valley’s most prominent investment banker, that he will be the subject of civil charges, sources said Friday.
One charge against Quattrone, head of technology banking at Credit Suisse First Boston in Palo Alto, is said to involve “spinning,” an activity in which investment bankers allocated shares of prime initial public offerings to key clients, practically guaranteeing them a fortune as the shares soared.
Spinning recently has been deemed illegal by regulators. It had become a symbol of the way Wall Street firms rewarded friends and clients at the expense of the small investor, whose only chance to buy the offerings was at their peak.
Quattrone also allegedly failed to prevent conflicts of interest between his team and the firm’s analysts. The lack of critical distance between those who were taking companies public and those who were recommending the stocks, while widely known during the dot-com boom, has become another hot button with regulators.
The notification to Quattrone, via a regulatory tool called a Wells notice, gives him a chance to dispute the charges before they are formally filed. Wells notices often are preludes to quiet settlements. The charges first were reported Friday in the Wall Street Journal.
In a statement Friday, Quattrone promised “to cooperate fully with any regulatory inquiry” and said he had always “complied with all rules and regulations.”
Quattrone is the third high-profile individual to be a target of the NASD, formerly known as the National Assn. of Securities Dealers.
Former Salomon Smith Barney analyst Jack Grubman recently settled with regulators by paying a $15-million fine for hyping a telecom stock. Henry Blodget, a former Merrill Lynch analyst, is another Wells recipient.
CSFB said Friday that it had resolved all IPO and research questions as part of an industrywide settlement reached with regulators in December. CSFB’s share of the fine was $200 million. Earlier, it had paid $100 million to resolve other charges involving IPOs.
The hunt now is for individual wrongdoers. “We’re in the process of evaluating cases,” an NASD official said Friday.
Quattrone, a Philadelphia native who came West to attend Stanford University, has spent nearly his entire 23-year career in Silicon Valley. While working for Morgan Stanley in 1995, he took Netscape Communications Corp. public. Its stock more than doubled its first day, launching the dot-com boom and Quattrone’s reputation.
He soon switched to Deutsche Bank, where he took Amazon.com Inc. public. In one year, he reportedly made $7.5 million. In 1998, Quattrone and his team left for CSFB, and his pay jumped to $20 million.
CSFB’s share of the IPO market then went from 7% in 1998 to 16% in 2000, bringing in vast fees.
Some of those offerings are the subject of class-action suits by unhappy investors. Their lawyers were predictably enthusiastic to hear about Quattrone and the NASD.
“The hardest thing in security class actions is convincing people it’s an actual fraud,” said New York lawyer Howard Sirota. “They know how many baseless cases are filed on every stock drop. So when you get action by the NASD, it’s enormously helpful.”