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Tech bubble banker slapped on wrist

$30,000 fine, ban for CSFB's Quattrone

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The go-to guy for greedy tech CEOs during the dot com bubble has been suspended for a year and fined $30,000 by the securities industry regulator NASD.

Frank Quattrone amassed a $120 million personal fortune as the head of Credit Suisse First Boston's technology investment unit based in Palo Alto, and took over one hundred tech start-ups public. Before joining CSFB, Quattrone engineered IPOs for Cisco, Amazon.com and Netscape at Morgan Stanley.

Quattrone is under fire on two conflict of interest charges from both the securities regulator and state and federal prosecutors. The first is the now familiar charge of stock tip payola: CSFB's analysts made recommendations based on the amount of business CFSB's banking business could get. ''What have we extracted from them on banking side to get this coverage?'' asked Quattrone, when CSFB began to cover Agile Software.

In another example, Quattrone asked and received $6.5 million from Research in Motion to resume coverage, or "return them to 'Most Favored Nation' status", in Quattrone's words. The second charge involves "spinning", or distribution of per-IPO stock to "Friends of Frank". In one of the most notorious examples, Michael Dell requested 250,000 shares of Corvis stock justifying the request with "I know there have been efforts on both sides to build the relationship and an offering like this would certainly help."

Quattrone is currently resting between trials. A state and federal trial on the narrow charge of destroying evidence before a grand jury investigation was halted in October when the jury couldn't reach a verdict; a retrial on the same charges will resume in March.

But the NASD sanctions are potentially more serious. For refusing to testify, Quattrone last week received a $30,000 fine - essentially, a slap on the wrist - and a one year ban from working in the securities 'industry'. But unless he provides some answers, the year-long ban will become a lifetime ban. Not that Quattrone ever needs to work again.

But perhaps the most disturbing aspect of the case isn't the charges, or the cover-up, but the fact that Quattrone can count on plenty of friends in Silicon Valley, many of whom insist he was a scapegoat. The inference is that speculative insider dealing is entirely justifiable. While the speculative bubble would never have taken place if individual investors hadn't shrugged off personal responsibility to join the gold rush, the ethical conclusion we're invited to draw is that Quattrone's excesses are simply part of the froth. Entrepreneurs face risk, but banks don't. (As Buckminster Fuller playfully liked to point out, the United States is a "socialist country" and has been ever since the government agreed to underwrite banking failures in the New Deal.)

Many in Silicon Valley are hoping that a Google IPO will be the catalyst for a repeat of the speculative mania that brought us Quattrone. Does the technology investment need a repeat? And can it even afford it? ®

Related Link

NY AG's speech to Institutional Investor Dinner, 2002

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