NASD yesterday charged technology banking star Frank P. Quattrone with undermining the independence of Credit Suisse First Boston's research analysts and violating securities industry rules against paying off executives to get their firms' business.
NASD also sought to bar Quattrone, 47, from the securities industry for failing to cooperate with a second investigation into whether documents were destroyed to hinder a federal grand jury probe.
Quattrone, who quit CSFB earlier this week, declined to talk to NASD investigators about the documents because he is also facing a criminal obstruction of justice probe by the Manhattan U.S. attorney's office and a broader securities fraud investigation by the New York attorney general, according to the NASD complaint. Both those offices expect to decide whether to file charges in a few weeks, sources said.
The payoff charges against Quattrone, who quit CSFB's Palo Alto, Calif., office earlier this week, stem from the widely discussed practice of "spinning" -- allocating shares in hot initial public offerings to key executives in hope of getting their company's investment banking business.
The complaint alleges that as many as 300 "Friends of Frank" may have benefited from the practice, including executives from start-ups such as El Sitio Inc., Phone.com Inc. and EGreetings Network Inc.
NASD also contends Quattrone undermined the independence of CSFB's tech analysts by tying their bonuses to the firm's banking revenue and allowing bankers to pressure analysts to improve ratings on CSFB clients. For instance, the complaint alleges that after a banker wrote that Allaire Corp.'s chief executive wanted CSFB to resume research coverage, Quattrone wrote, "We need to make this happen."
But Quattrone's lawyer, Howard Heiss, said the charges were "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."
The rule against payoffs "has never been used to cover this kind of IPO allocation," Heiss said, adding that Quattrone was never in charge of IPO allocations. CSFB declined to comment.
The Securities and Exchange Commission is also on the case. "Our investigation into research matters, including individuals, is continuing,"said Director of Enforcement Stephen M. Cutler.
The NASD complaint and Quattrone's response will be heard by a three-person panel that includes two members of the industry. The decision can be appealed to a national panel and the SEC.
NASD also offered new details about Quattrone's role in the sending of two December 2000 e-mails urging his staff to "clean up those files" at a time when the bank was under grand jury subpoena.
A Quattrone subordinate sent the first cleanup memo -- urging staffers to purge notes and early drafts from their files -- on Dec. 4, one day after Quattrone had been informed of the grand jury probe into IPO allocations at another part of the firm. On Dec. 5, a CSFB lawyer had advised Quattrone to hire his own attorney. That same day, the banker sent out his e-mail endorsing the cleanup.
Five minutes later, the subordinate informed Quattrone that every other division had been told to hang on to its files because of the probe, and company lawyers were planning to tell the tech division to do the same. But the memo countermanding the clean-up order didn't arrive for another full day. By then several employees had already purged their files, investigation sources said.