Frank Quattrone, the star technology banker at Credit Suisse First Boston, personally asked a research analyst who was about to begin covering a software stock what investment-banking business the firm had “extracted” in return for the coverage, according to an e-mail between Mr. Quattrone and the analyst, Wednesday’s Wall Street Journal reported.
The Nov. 6, 2000, e-mail, obtained by Massachusetts securities regulators as part of a pending case against the Credit Suisse Group (CSR) securities unit, marks the most direct communication by Mr. Quattrone tying CSFB’s stock research to investment-banking business.
Mr. Quattrone, whose technology-banking group catapulted the firm into the top ranks of Wall Street underwriters, has been a lightning rod for criticism over Wall Street conflicts since the market bubble burst. He had more control over the technology research analysts who worked for him than some of his rivals because the analysts reported partly to him.
Separately, an additional set of e-mails shows other CSFB investment bankers attempting to dissuade an analyst at the firm who was considering downgrading another stock, Yahoo Inc., to a sell rating, based partly on the risk of losing potential banking fees.
The e-mails weren’t included in a civil fraud complaint against CSFB filed last month by Massachusetts regulators. But they appear to buttress an allegation by William Galvin, the state’s secretary of the commonwealth, that CSFB’s investment-banking division exerted undue influence on the firm’s research reports, which should have been disclosed to individual investors in the reports.
In an interview, Mr. Galvin said the use of the word “extracted” by Mr. Quattrone “shows an element of coercion that’s implied that’s very troubling. If coverage was tainted by whether banking business had been `extracted,’ that’s something at least the public should have known about.” He said the e-mails have surfaced as the state continues to review them “to expand and build on our case.”
Mr. Quattrone’s office referred questions to CSFB’s press office. A CSFB spokeswoman said he and other current CSFB employees weren’t available to comment. She added that CSFB “continues to work closely with the broad coalition of state and federal regulators to achieve significant national reforms.”
The disclosure of the e-mails comes amid negotiations between CSFB and a group of national and state securities regulators. On Friday, the regulators proposed that CSFB pay $250 million in penalties as part of the “global settlement” being negotiated between regulators and a dozen firms to resolve allegations of misconduct in research and the allocation of hot initial public offerings of stock during the stock-market boom of the late 1990s.
CSFB, which had a loss of $425 million in the third quarter, has balked at the size of the penalty, particularly since the firm already paid $100 million in January to settle charges of taking excessive commissions from investors in exchange for hot IPOs. But Mr. Galvin says his priority is gaining an assurance that the firm plans to change its conduct. “For me the issue is changing their behavior,” he said. “What they’ve done has cost people a great deal of money.”
CSFB is contesting the charges. Earlier this week, the firm noted in a filing to Massachusetts regulators that securities rules in effect then and now don’t bar securities firms from promising research coverage as part of an investment-banking relationship.