A Raw Deal
By Dan Ackman
29 April 2003
Frank Quattrone is in a curious pickle. The defrocked investment
banker from Credit Suisse First Boston now stands as the lone criminal
defendant in the government's widespread investigation of abuses in
the IPO market. He has been charged with "obstruction of justice." But
he hasn't been charged with any crime the investigation of which he
allegedly obstructed, and neither has anybody else.
Mr. Quattrone and CSFB were both central to some very shady
business during the Internet IPO boom. Their sins, first revealed by
The Wall Street Journal, included the receipt of kickbacks from the
favored few who were allocated shares in oversubscribed IPOs. The
prices of these shares were certain to rise in the aftermarket. For
its sins, CSFB paid the Securities and Exchange Commission $100
million in civil fines. But it admitted no fault, and Mr. Quattrone
was not a party to the SEC deal. (The Street yesterday settled a
somewhat related case with the SEC and others and agreed to pay $1.4
billion.)
Last week, the federal government filed new charges, both personal
and criminal. The three counts all pertain to three days in December
2000 when lawyers and bankers at CSFB exchanged e-mails concerning
pending regulatory and grand jury investigations into its IPO
practices. The e-mails focus on CSFB's "document retention policy,"
which would be better termed a document destruction policy. While
several were addressed to Mr. Quattrone, only one of note came from
him. In it he endorses to his group the company policy: "[H]aving been
a key witness in a securities litigation in south texas i strongly
advise you to follow these procedures." That's it. That's all he did.
The case against Mr. Quattrone is pretty thin. In a way it calls to
mind the obstruction of justice indictment (and conviction) of Arthur
Andersen for its role in the Enron affair. But at least in the
Enron/Andersen situation, underlying crimes had pretty clearly been
committed, even if they had not yet been alleged. Here, there is an
alleged cover-up, but nothing criminal underneath. Also, with
Andersen, the firm was indicted for pursuing a firm policy. Here the
U.S. Attorney Jim Comey gave CSFB a pass, crediting it with full
cooperation. And then he charged Mr. Quattrone.
The California-based investment banking star is a millionaire many
times over, and he will no doubt mount the best defense money can buy.
(Besides, CSFB will pay his legal fees.) But the charges raise a red
flag nonetheless. It appears that Mr. Quattrone was charged for
refusing to cooperate. Others at the firm remain unindicted, despite
the criminal complaint's revelation that company lawyers in New York
laid down the policy that Mr. Quattrone simply endorsed. This may be
routine criminal justice, but that's the point.
It's not enough to note that someone is part of a sleazy business
or that his actions are against the best interest of the public. To
put a man in jail there must be a clear line crossed. Here the
government searched for lines, found muck, and indicted anyway.
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Mr. Ackman is a writer at Forbes.com.
