Frank Quattrone's Life in the Rough
Just days after getting suspended from Credit Suisse First Boston (CSR ) on Feb. 3, high-tech investment banker Frank P. Quattrone looked as if he didn't have a care in the world. He picked up his golf clubs, walked onto the course, and played alongside such Hollywood stars as Bill Murray and Kevin Costner in the PGA's Pebble Beach National Pro-Am tournament in California. Later, at their palatial home next to the 14th fairway, Quattrone and his wife, Denise, hosted an open house for golfers and dozens of high-tech pals.
Golf isn't the only thing keeping Quattrone busy these days. He has been spotted at a Stanford University basketball game, eating out at Silicon Valley restaurants, and making social calls on venture capitalist offices along Sand Hill Road. He even attended a charity gala for curing autism on Mar. 15.
But for all his apparent nonchalance, the 47-year-old Philadelphia native may be in deep trouble. After earning more than $200 million during his three-and-half-years at CSFB, he resigned under pressure on Mar. 4. Two days later, he was charged by the NASD with using lucrative shares in initial public offerings to win business for his firm and pressuring analysts to write favorable reports on client companies. Now he faces two grand-jury inquiries into several charges, including whether he encouraged the destruction of documents and e-mail after he learned that CSFB was under investigation. Quattrone has insisted repeatedly that he did nothing wrong, and his spokesman adds that none of the charges has any merit.
Many folks in the Valley agree. And though support for Quattrone isn't universal, it's strong enough to pose problems for investigators. For the past three months, New York State Attorney General Eliot Spitzer has had a team of up to 12 attorneys in the Valley investigating the obstruction-of-justice charge and other allegations. At the same time, U.S. Attorney for the Southern District James B. Comey has been conducting his own probe. But according to people close to the inquiries, Quattrone's friends and associates haven't coughed up much information for prosecutors. "There was a lot of 'could not recall' from all the people we talked to," says a person close to the investigations. "A lot of recollections were hazy." Comey is expected to focus on the obstruction charge while Spitzer delves into the other allegations. Spitzer declines to comment, as does Comey.
The Quattrone investigation is expected to be Spitzer's final inquiry into what has been an unprecedented effort against corrupt practices on Wall Street. It began with a 10-month probe of Merrill Lynch & Co. that the firm settled last May by agreeing to pay a $100 million fine. In December, Spitzer and the Securities & Exchange Commission reached a settlement with 10 Wall Street firms that called for $1.4 billion in fines and the creation of a fund to support independent research.
One focus of Spitzer's latest probe seems to be the "Friends of Frank" -- the more than 300 high-tech executives and venture capitalists who received shares in hot IPOs, allegedly in exchange for funneling investment-banking business to CSFB. According to a Feb. 3 e-mail sent by a lawyer to his venture-capital client and obtained by BusinessWeek, "attorneys are asking questions about Friends of Frank [investment] accounts" held at CSFB.
In some cases, the friends made millions of dollars through their connection with Quattrone, which may go a long way toward explaining their support for him even as prosecutors circle. "People have always found ways of scratching each other's backs," says Kirk O. Hanson, an ethics professor at Santa Clara University. "The spinning controversy [awarding IPO shares in return for favors] can be seen as one more case of that. People may also be saying, 'There but for the grace of God go I."'
Other backers were never Friends of Frank but simply admire him for his dealmaking skills. "This guy was very effective and a great performer," says C. Richard Kramlich, a veteran VC at New Enterprise Associates who invited Quattrone to his office on Feb. 24 to express solidarity. "We wanted to show him we support him. A guy like that can become a pariah."
Many Quattrone loyalists maintain that his conduct was legal and common during the high-tech boom. Sanford Robertson, who once competed against Quattrone as chief executive of now-defunct high-tech investment bank Robertson, Stephens & Co., says all the banks gave IPOs to favored clients and it wasn't a crime. "I don't think he's any more guilty than anybody else," says Robertson, now a VC who puts himself squarely in Quattrone's camp. Another Quattrone ally, a high-tech exec who asked to remain anonymous, says that every bank he talked to about his IPO offered him and his top managers access to hot deals. "That was the pitch every one of the bankers made," he says.
Still, some aspects of Quattrone's case are starting to polarize a community that prides itself on sticking together. That's clear when discussion turns to the obstruction-of-justice allegations. E-mails uncovered in the investigations suggest that Quattrone urged employees in December, 2000, to "clean up" their files after being notified that a federal inquiry into CSFB's IPO practices had begun. A spokesman for Quattrone says his actions followed routine CSFB document-retention procedures and were completely unrelated to any federal actions. Friends are willing to give Quattrone the benefit of the doubt. But critics point to the alleged obstruction as proof that Quattrone didn't play by the same rules as other bankers. They say it's time for him to be penalized for ultra-aggressive behavior that clearly crossed the line.
Case in point: CSFB raised the ire of executives at storage-networking company Brocade Communications Systems Inc., based in San Jose, Calif., when they didn't pick the firm to handle a debt offering in December, 2001. The day Brocade announced the offering, a CSFB analyst put out a negative research note about the company that caused its stock to dip. Later that day, Brocade CEO Greg Reyes received an e-mail from one of Quattrone's investment bankers suggesting that Brocade might want to consider CSFB in the future, say two people who read the e-mail. But Quattrone's spokesman says that Quattrone didn't pressure researchers to write anything that they didn't truly believe. "There is very clear evidence in e-mails directly from Quattrone, as opposed to e-mails from other people [as in the Brocade case], that demonstrate Frank's unwavering commitment to analysts' independence," says the spokesman.
Despite the bold talk of his friends, Quattrone's case is finally forcing the Valley to ponder its way of doing business. "Many people in Silicon Valley are not sure where the line is drawn between acceptable back-scratching and more questionable gift-giving," says Santa Clara's Hanson. If they can't figure it out for themselves, Spitzer & Co. will likely do it for them.
By Linda Himelstein with Peter Burrows in San Mateo, Calif., and Heather Timmons in New York