Legendary dot-com financier Frank Quattrone has become the first Wall Street player to face criminal charges stemming from a sweeping U.S. investigation into industry excesses during the stock market bubble.
The former star of Credit Suisse First Boston’s Silicon Valley technology banking group surrendered in New York yesterday to face charges that he told his staff to destroy potentially incriminating documents as investigators probed allegations of conflicts of interest and dubious dealings in hot technology stock offerings.
The obstruction of justice and witness tampering charges stem from an e-mail Mr. Quattrone sent to fellow CFSB bankers in late 2000 urging them to “clean up” their files two days after learning that securities investigators were looking into practices involving initial public offerings, according to a 22-page complaint.
The complaint alleges that Mr. Quattrone fired off the e-mail two days after CSFB lawyer David Brodsky warned him the U.S. Securities and Exchange Commission and a federal grand jury had subpoenaed documents.
If found guilty, the 47-year-old Mr. Quattrone could be the first Wall Street player to face jail time during the continuing probe. The charges carry a maximum penalty of 10 years behind bars.
Through his lawyer, Mr. Quattrone professed his innocence and vehemently denied that he 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,” lawyer John Keker told reporters outside a Manhattan court after his client was released on bail.
Mr. Quattrone has previously said he merely wanted to alert his employees to the company’s routine policy on disposing of paperwork.
Former Enron Corp. auditor Arthur Andersen was found guilty of obstruction-of-justice charges last year because of its application of a similar “document retention” policy.
The charges against Mr. Quattrone appear to be part of a get-tough approach by federal regulators after a lull in activity by the U.S. government’s corporate crime task force. Federal prosecutors said the case is a warning shot to other Wall Street players caught up in the sweeping probe by federal and state regulators.
“The message of this case is simple,” said James Coomey, the U.S. Attorney in Manhattan. “If you or your company gets a subpoena from the SEC or the federal Grand Jury, don’t even think about playing games, about destroying documents or throwing roadblocks in the way of investigators trying to find facts. In the privacy of your office, you may think that no one will ever know. If you do that, you’re playing with fire.”
Mr. Quattrone, who flew in from his home in California, was released after a five-minute court appearance. U.S. Magistrate Judge Theodore Katz ordered him to surrender his passport and barred him from leaving the country.
Mr. Quattrone, who was put on paid leave by CFSB in February and quit the following month, was a powerful player during the tech boom as he helped underwrite new share offerings of companies such as Netscape Communications Corp., Amazon.com Inc., and V A Linux Systems Inc.
Between 1998 when he joined CSFB and the end of 2000, Mr. Quattrone’s technology group was the lead underwriter in 79 IPOs worth $8.7-billion (U.S.) three-quarters of CSFB’s IPO business during the span.
As billions of dollars were pouring into the tech sector, Mr. Quattrone grew rich as he built CSFB into an underwriting powerhouse. At the height of the boom, he earned nearly $100-million a year, taking home a cut of all of CSFB’s technology banking income.
But investigators allege that his success was at least partly fuelled by abusing practices such as “spinning,” in which key clients are given preferential access to potentially lucrative IPO shares as way to solicit highly profitable investment banking business.
When tech stocks were soaring, those IPO shares could be flipped for quick profit.
Sometimes, a client would receive shares after a stock had already shot up in price, resulting in fast, easy money for the lucky recipient.
Investigators have also alleged that CSFB and other bankers promised favourable stock ratings in exchange for underwriting business.
CSFB has already paid a $100-million fine to the SEC and the National Association of Securities Dealers to settle allegations of conflicts of interest in its IPO business.
The criminal charges against Mr. Quattrone come just days before the formal unveiling of a separate set of civil charges by several regulators that investment bankers, including Mr. Quattrone, engaged in corrupt practices to win investment banking business for CSFB.
Officials of CSFB, which has defended Mr. Quattrone in the past, refused to comment on the charges yesterday.
Mr. Quattrone must return to court May 13. A formal indictment on the charges is expected to come within the next 20 days.
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