Government efforts to crack down on corrupt Wall Street practices intensified today as federal prosecutors charged former Credit Suisse First Boston technology banking star Frank Quattrone with obstructing justice, the first criminal case to result from several Wall Street conflict-of-interest probes.
Quattrone, 47, once one of the country’s hottest tech dealmakers, is one of several high-profile Wall Street figures who have been investigated by prosecutors and regulators since the boom in tech stocks ended three years ago.
As scandals torpedoed the stocks of such high-flying companies as Enron Corp., WorldCom Inc. and Tyco International Ltd., regulators and prosecutors began attacking investment banking practices that were tolerated during the market’s bubble years. Investigations have unearthed e-mail and documents illustrating how Wall Street firms promoted stocks that their analysts thought were losers, doled out shares of initial public offerings to big clients and helped firms hide financial problems from investors.
Wall Street is trying to put the problem behind it. The 10 largest firms have tentatively agreed to a settlement that involves $1.4 billion in fines and payments and accuses some firms, including CSFB, Citigroup and Merrill Lynch & Co. of securities fraud. The SEC has not approved the settlement.
But despite such efforts, the bad news continues. The New York Stock Exchange is investigating allegations that floor traders profited at the expense of small investors. Federal regulators and New York state Attorney General Eliot L. Spitzer have said they are still considering filing charges against individual analysts and bankers.
The SEC has notified suspended Lehman Brothers analyst Holly Becker that it is preparing insider-trading charges against her, sources said. NASD has filed charges against six firms for the way they allocated initial public offering shares and has warned former Merrill star Internet analyst Henry Blodget to expect a civil complaint.
Former Citigroup analyst Jack Grubman has already settled with NASD and the Securities and Exchange Commission
Quattrone, 47, is charged with obstructing justice, obstructing an agency proceeding and persuading others to destroy evidence.
The criminal charges stem not from his investment-banking activities, but rather from the way he allegedly behaved during 2000 when the SEC and a federal grand jury in Manhattan were investigating IPO allocations.
According to the 23-page complaint, two days after been told of a grand jury subpoena, Quattrone sent an e-mail, on Dec. 5, 2000, to several hundred CSFB employees that endorsed a subordinate’s memo urging them to “catch up on file cleaning.” Although CSFB lawyers countermanded the order within days, “hundreds of computer files” and “numerous CSFB documents were destroyed,” the complaint said.
Quattrone, of Menlo Park, Calif., surrendered to the FBI in New York this morning and was released on his own recognizance after appearing before a magistrate judge. Dressed in a gray pinstriped suit and holding himself very erect, Quattrone declined to comment as he walked through a crush of cameras outside the federal courthouse in Manhattan to a waiting car.
His attorney, John W. Keker, said, “Frank Quattrone is innocent. He never obstructed justice. 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. These accusations are wrong and unfair.”
Keker said Quattrone expects a jury trial to exonerate him. “For his entire career Frank Quattrone has been an honest and ethical businessman, and his acquittal in this case will prove that he still is,” the defense attorney said.
Manhattan U.S. Attorney Jim Comey said he brought the obstruction of justice charges because “this is the kind of case that has to be brought. It goes to the heart of the integrity of our investigative system.”
According to the criminal complaint, Quattrone was informed by CSFB lawyers on at least nine occasions in the spring, summer and fall of 2000 that NASD and the SEC were seeking documents related to the firm’s IPO allocations.
On Dec. 3, 2000, David Brodsky, who then was general counsel, told Quattrone that a federal grand jury was involved. The next day, a Quattrone subordinate sent out the “catch up on file cleaning” memo. On Dec. 5, after learning of an upcoming news article and after being advised to get a personal lawyer, Quattrone forwarded the “cleaning” memo to several hundred people, adding the words “Having been a key witness in a securities litigation case in south texas i strongly advise you to follow these procedures.”
That federal IPO probe closed in 2001 without anyone being arrested. The cleanup memos didn’t come to light until January of this year, when they were obtained by the Wall Street Journal.
Quattrone quit CSFB last month, and the firm declined to comment today. Comey said CSFB had “cooperated fully” in the investigation.
Former federal prosecutor Peter White said the case shows how the environment has changed in the wake of the past year’s corporate scandals. “This is the sort of thing that three or four years ago doesn’t get brought” without a charge in the underlying investigation in this case the IPO probe for fear juries would not take the obstruction seriously, said White, who is now with Hunton and Williams. But now, “the general public is very sensitized to corporate responsibility.”