Securities industry regulators have informed Credit Suisse First Boston investment banker Frank Quattrone that they plan to file civil charges against him for his role in allegedly improper allocations of initial public offering shares and for failing to properly supervise research analysts, sources familiar with the matter said.
The NASD, the securities industry's main self-regulatory group, has issued a "Wells notice" to Quattrone, the sources said. The notice alerts him to impending charges and gives him a chance to respond. Quattrone, whose close relationship with Internet executives in Silicon Valley helped vault CSFB into the top ranks of technology bankers in the late 1990s, is the third Wall Street executive to be targeted by regulators in recent weeks.
The NASD has informed former Merrill Lynch & Co. analyst Henry Blodget that it plans to file charges against him for allegedly misleading investors with inflated research reports intended to help Merrill win banking business.
The NASD and the Securities and Exchange Commission recently settled with former Salomon Smith Barney telecommunications analyst Jack B. Grubman over similar allegations. Grubman agreed to pay $15 million and was banned from the securities industry.
After reaching a$1.4 billion settlement with 10 of the biggest securities firms last month, regulators are now targeting individuals in the research and IPO scandals that rocked Wall Street last year. In addition to fines and other penalties, the firms agreed to greater separation between banking and research as part of the agreement. Regulators and the firms are still working on precise language of the separation.
The NASD is alleging that Quattrone failed to police conflicts between banking and research. In an unusual structure, technology analysts at CSFB once reported both to Quattrone and to the head of research at the firm. Generally, analysts on Wall Street are supposed to work independent of banking. But during the boom years, regulators say analysts often wrote glowing reports on troubled companies in order to generate banking fees.
The NASD is also charging that Quattrone helped direct hard-to-get IPO shares in companies that CSFB was helping take public to favored executives at firms that were also banking clients. This practice, known as "spinning," violates industry rules and was recently banned by federal regulators. The impending charges against Quattrone were first reported in today's Wall Street Journal.
In a prepared statement, Quattrone said: "Throughout my 23-year career in investment banking, I have upheld the highest standards of professional conduct in my work and have complied with all rules and regulations. CSFB has found no evidence of wrongdoing on my part." He was referring to an internal investigation conducted by Gary Lynch, CSFB general counsel.
A CSFB spokeswoman declined to comment, saying the firm does not speak about regulatory issues regarding individual employees. Last year, CSFB paid $100 million to settle complaints with the SEC and the NASD that it demanded kickbacks from customers who were allowed to buy stocks at the offering price.