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End of An Era For Silicon Valley and “Friend of Frank”


Editor’s Note:This post originally appeared as a news story in The New York Post.

REGARDLESS of the final outcome, Frank Quattrone’s administrative leave from Credit Suisse First Boston – the bank he almost single-handedly turned into the No. 1 IPO machine of the Internet bubble – marks the end of an era.

No, not the dot-com era – that’s been over for a while. But Quattrone’s departure, even if it’s temporary, is the first time that a government or regulatory investigation has reached out and laid a hand on a prominent Silicon Valley figure, one trusted, and even loved, by the executives he helped enrich.

It is the end of the self-dealing “friends and family” mentality that allowed a handful of Silicon Valley insiders to share in a pool of stock issues on terms that favored them over individual shareholders.

“I feel bad something like this is happening to the whole community,” said one banker, one of Quattrone’s fiercest rivals. “It didn’t need this. Silicon Valley would have been just fine without this, and people would have made a lot of money.”

Indeed they would have. From Apple to Netscape, Handspring to and a host of other live, credible and money-making companies – all of which Quattrone helped bring to the public markets – Silicon Valley engineers, computer scientists and programmers have done well.

Millionaires are plentiful here, even now. There are even a few newly minted billionaires walking around.

But as The Post reported first two years ago, Quattrone helped make the rich even richer with his “friends of Frank” accounts.
Those special brokerage accounts were offered to 160 high-ranking tech executives, venture capitalists and others who Quattrone considered helpful to his business. It wasn’t a large group, but it was, at its heart, an influential group network, an invaluable one for CSFB.

According to court documents filed by former CSFB employee John Schmidt – one of the bankers dismissed by the bank in 2001, accused of violating bank policy in regard to commissions – Quattrone allocated 3 percent of every tech offering made by the firm to “friends of Frank.”

Three percent doesn’t sound like a lot of stock. But tech floats – the amount of stock offered to the public – were very small. So the price of the stock that was offered saw enough of a spike in price – double, triple, quadruple – that anyone who got such allocations was sure to make money.

One friend of Frank, a minor player who got in late and held his account for only a year, made $500,000. Most did much better.
Roughly calculated, the “friends of Frank” shared more than $500 million over a couple of years.

Two years ago, no one in Silicon Valley thought the accounts, which dealt exclusively in public offerings made by the bank, were in any way out of the ordinary.

They were, said a CEO, “part of the client-happiness business.” Others took Quattrone’s attitude toward the initial IPO probes launched in 2000 by the U.S. Justice Department and the Securities and Exchange Commission: Regulators would find no wrong-doing because no laws had been broken.

Today, with New York regulators and the National Association of Securities Dealers looking at Quattrone, the “friends of Frank” aren’t so happy.

“Everybody who was smart enough to be a ‘friend of Frank’ was smart enough to shut up,” said one valley insider. “People stopped bragging.”

Share  Posted by Chris Nolan at 9:41 PM | Permalink

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