Federal prosecutors filed a criminal obstruction-of-justice complaint yesterday against former star investment banker Frank Quattrone, marking the first time that criminal charges have been lodged against a Wall Street figure in the industry’s current rash of scandals. He surrendered to the FBI yesterday.
The three-count complaint alleges that the Palo Alto, Calif.-based Quattrone, the former head of technology investment banking at Credit Suisse First Boston (CSFB), sought to impede government investigations into the firm’s handling of initial public offerings (IPO) of stock.
According to the complaint, Quattrone sent an e-mail to fellow employees urging them to destroy IPO documents even though he knew that government probes were under way and that all records had to be preserved. CSFB employees responded to his directive by destroying “numerous” documents that should have been turned over to investigators, the complaint said.
Prosecutors portrayed the case as sending an important message to corporate America.
Government investigations of corporate wrongdoing rely on executives complying with subpoenas and turning over all necessary documents, said James Comey, the U.S. attorney in Manhattan whose office filed the complaint.
“This is the kind of case that has to be brought,” Comey said. “We simply must enforce the honor system.”
Quattrone’s attorney, John Keker of San Francisco, said his client is innocent.
“Only prosecutors who see the world through dirty windows would take a one-sentence e-mail supporting company policy and try to turn it into a federal criminal case,” he said.
Regulators have conducted high-profile civil probes of brokerage firms and individuals as part of their investigation of excesses during the 1990s bull market. But this is the first criminal action lodged against someone on Wall Street as a result of those probes.
Quattrone, 47, appeared before U.S. Magistrate Judge Theodore Katz after surrendering and was released on his own recognizance. Quattrone, who was ordered to turn over his passport, could face a maximum of 25 years in jail. Katz set a preliminary hearing for May 13. The government has 20 days to file an indictment.
A CSFB spokeswoman declined comment.
Quattrone was the most powerful investment banker in Silicon Valley during the height of the 1990s technology craze. He is credited with anticipating the tech surge early on and establishing relationships with Silicon Valley executives far earlier than his Wall Street rivals.
Problems for the firm and Quattrone began when the Securities and Exchange Commission and the National Association of Securities Dealers (NASD) investigated the way CSFB doled out lucrative IPO shares in late 2000. The firm later paid a $100 million fine to resolve the probes. Comey’s office convened a grand jury at the time, but ended its probe without bringing charges.
The issue seemed finished until a previously undisclosed crop of e-mails surfaced in January indicating that Quattrone was aware of the probes when he sent his e-mail urging co-workers to destroy documents.
In his Dec. 5, 2000, e-mail, Quattrone endorsed a suggestion e-mailed the day before by one of his subordinates encouraging employees to “clean up” certain documents. Quattrone’s e-mail told employees that “I strongly advise you” to follow the suggestions outlined in the Dec. 4 e-mail.
According to the complaint, Quattrone was told in June 2000 about the NASD investigation, and as early as July about the SEC probe. He was informed on Dec. 3 two days before sending his controversial e-mail about the grand-jury investigation, according to the complaint.
CSFB suspended Quattrone in February after the new e-mails came to light. He quit the firm under pressure last month.
Fed probe targets 130 firms
U.S. prosecutors are investigating possible fraud by executives at about 130 public companies and are likely to file new criminal charges in dozens of those cases, U.S. Justice Department officials said.
“We had thought that maybe this corporate fraud crisis had reached a peak, but we continue to have new investigations and new allegations on companies on a regular basis,” said Keith Slotter, chief of the FBI’s financial-crimes section. “At this point, it has not shown any sign of ebbing.”
Prosecutors have charged executives with fraud and related crimes in some of the 130 cases, including those involving Enron, WorldCom, Kmart and HealthSouth. Slotter declined to name which executives might be charged. Prosecutors are investigating allegations of fraud against officials at Lucent Technologies, Paul Allen-controlled Charter Communications, Bristol-Myers Squibb and AOL Time-Warner, the companies said.
The Federal Bureau of Investigation has doubled to 200 the number of agents probing corporate corruption in the past year, and wants to add another 60 to pursue cases, Slotter said.
The Justice Department crackdown also charged executives at Adelphia, Qwest and Dynegy.
Many more will be charged by the department’s Corporate Fraud Task Force, which began operations last July, or by the nation’s 94 U.S. attorneys, Slotter said.
Bryan Sierra, a spokesman for the Justice Department, said prosecutors are working on about 130 fraud cases, including those in which some charges have been filed. The FBI is involved in about 100 of those cases, Slotter said.