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Quattrone Charged


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

The NASD, the private regulatory agency that oversees the buying and selling of securities, filed formal charges against investment banker Frank Quattrone yesterday.

The NASD, formerly known as the National Association of Securities Dealers, delivered a series of complaints in sometimes harsh language, accusing Quattrone of deliberately manipulating the sale of once-high-flying tech stocks to defraud unsophisticated investors and reward Silicon Valley insiders.

“The facts here are very specific,” said attorney Barry Goldsmith, NASD’s executive vice president for enforcement. “The existence of a firm within a firm, the ‘friend of Frank’ accounts, are things that I would not characterize as an industry standard.”

Quattrone, once Credit Suisse First Boston’s star tech banker, was fired from the bank on Tuesday after it learned he had declined to cooperate with the NASD’s investigation into his activity.

“The NASD charges are completely without merit and represent an unprecedented attempt to take punitive action against an individual for conduct that was legal at the time and widespread throughout the industry,” Quattrone’s lawyer, Howard Heiss, said in a statement.

The NASD said in its complaints that Quattrone engaged in a practice called “spinning,” or allocating stock to various tech executives with the understanding they would do business with CSFB. The existence of these special brokerage accounts, known as “friend of Frank” accounts, was first reported two years ago in The Post and described in the NASD’s filing as “uniquely aggressive.”

While one account holder – an executive at what was then known as – received a statement saying he had made more than $1 million, “the investing public, on the other hand, often experienced nothing but losses,” NASD said.

Executives from a variety of companies taken public by CSFB – (now merged with another CSFB client,, to create Openwave), eGreetings, El Sitio, and Interwoven – received “friend of Frank” allocations because they did business with CSFB, the NASD said.

The NASD did not name the individual executives who received shares but described them as people Quattrone and brokers at the firm would call “strategic.”

There were almost 300 “friend of Frank” accounts, according to the NASD’s complaint, which did not total the profits made by the account holders. A rough estimate – made using CSFB’s enormous IPO business, the normal first-day jump in share price and the profits made by other account holders – puts the total close to $1 billion.

Quattrone is also charged with failing to properly supervise the bankers, analysts and brokers who reported to him in CSFB’s Palo Alto, Calif., offices. The NASD says Quattrone created a bank-within-a-bank that operated almost independently of the rest of CSFB and continued to manage that tightly loyal structure despite indications that it may have created conflicts of interest.

Quattrone was able to unfairly influence analysts’ reports and other activity that was supposed to be independent from the buying and selling of stock, the NASD complaint says.

“It was, quite simply, conflict-ridden,” an NASD attorney said.

Share  Posted by Chris Nolan at 9:34 PM | Permalink

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