When the trial of Frank Quattrone begins in a Manhattan courtroom Monday, the biggest criminal case against a Wall Street figure in years will hinge on a two-line e-mail.
The government has charged the once-powerful Silicon Valley investment banker with obstruction of justice and witness tampering, alleging that Quattrone wrote the brief electronic message to prod his staff to destroy incriminating documents.
The trial will be closely watched, in part because it’s the highest-profile criminal case to hit Wall Street since the insider-trading probes of Ivan Boesky and others in the late 1980s.
The outcome also will be viewed as a gauge of the government’s progress in today’s broader crackdown on corporate fraud. Though the trial of former Tyco International Ltd. chief L. Dennis Kozlowski also starts Monday, the expected two-week Quattrone proceedings probably will be the first of the current crop of white-collar cases to be decided by a jury.
Moreover, the trial is likely to cast a harsh light on the ethos of Silicon Valley in the 1990s, when the founders of upstart technology outfits scored huge profits in the run-and-gun market for initial public stock offerings. Many of those companies later caused huge losses for investors when they disintegrated during the bear market.
“This is about more than Frank Quattrone,” said George B. Newhouse Jr., a white-collar criminal specialist at Thelen Reid & Priest in Los Angeles. “This is about greed and excess in the 1990s, both in Silicon Valley and on Wall Street.”
Quattrone was one of the most powerful men in the securities industry in the last decade when he was the Palo Alto, Calif.-based head of technology investment banking for Credit Suisse First Boston. His success came because Quattrone courted tech entrepreneurs years before Internet mania struck and they later turned to him for financing.
By 2000, however, securities regulators were looking into how CSFB allocated shares of hot IPOs to clients. Quattrone is charged with trying to impede probes by the Securities and Exchange Commission and by a federal grand jury.
CSFB eventually paid $100 million to settle probes by the NASD – which regulates securities dealers – and the SEC that it received kickbacks by charging excessive commissions for certain IPOs. The grand jury hearings ended with no charges being brought. Quattrone resigned in March under pressure from CSFB.
The prosecution is expected to argue that Quattrone was told several times about the existence of the investigations and knew he shouldn’t destroy documents.
On Dec. 3, 2000, according to papers filed by the government, Quattrone was notified about the grand jury investigation in an e-mail from David Brodsky, a CSFB lawyer.
The next day, Richard Char, an investment banker in Quattrone’s group, proposed sending out an e-mail to tech bankers urging them to “catch up on file cleaning.” Quattrone authorized Char to send the e-mail, according to the indictment.
On Dec. 5, Brodsky advised Quattrone to hire a lawyer. That night, Quattrone sent his staff the e-mail: “having been a key witness in a securities litigation case in south Texas, I strongly advise you to follow these procedures.”
After receiving the e-mail, prosecutors alleged, many people working for Quattrone purged documents relating to the investigation.
Quattrone’s lawyers have countered that he “had no intent to obstruct anything.” Keker is expected to argue that Quattrone was a time-strapped banker who received scores of e-mail messages every day and spent mere seconds composing his Dec. 5 missive.
Quattrone’s defense is going to be that the e-mail “was a trivial, irrelevant event and that he had much bigger things to worry about,” said Christopher Bebel, a white-collar defense attorney in Houston.
The defense also is expected to claim that Quattrone thought the investigations centered on CSFB’s equities division, which handled IPO allocations.