Tech Banking Star’s Empire Comes Under Public Scrutiny

Amid a deepening federal probe of how major Wall Street firms allocated shares in hot initial public offerings in recent years, securities regulators appear to be drawing a bead on investment banking giant Credit Suisse First Boston.

And within that firm’s California operations, one figure looms larger than others: technology banking star Frank Quattrone.

Last week, sources confirmed that two CSFB private bankers who were part of Quattrone’s Silicon Valley team had been placed on administrative leave as the federal investigation continues.

Though a number of Wall Street firms, including CSFB, have confirmed receiving information requests from investigators regarding IPO allocation practices, only CSFB is known to have suspended executives in connection with the probe.

Among Silicon Valley investment bankers, the 45-year-old Quattrone has become a titan. He has enjoyed unusual independence in leading a battalion of bankers and analysts first at Morgan Stanley, then at Deutsche Bank, and finally at CSFB, which won his team’s services in 1998 for an estimated $250 million in salaries, bonuses and profit-sharing deals.

The rumpled-looking son of a Philadelphia garment worker, Quattrone carried so much clout that he was able to win special profits and perks for his squad, and he wields control over both deal makers and securities analysts at CSFB. At most brokerages, those units report to separate officials.

Based in Palo Alto, Quattrone also supervises a private-banking unit catering to wealthy individuals and hedge funds. That unit employs the two men now on leave, John Schmidt and Michael Grunwald.

Among other things, the private banking unit helped CEOs, venture capitalists and investment funds get sought-after IPOs as they were being sold to the public.

The federal probe, a joint effort by the Securities and Exchange Commission and the U.S. attorney’s office in Manhattan, in part focuses on how brokerages decided on IPO allocations, and whether some customers paid large commissions to the firms on other transactions to secure shares of IPOs, securities lawyers say.

The government’s concern is that those arrangements might have amounted to illegal kickbacks or undisclosed profit-sharing between clients and their brokerages.

Thus far, no one has been accused of wrongdoing. But several investor lawsuits have been filed against tech companies and their brokerages, alleging that the system manipulated IPO prices.

At CSFB, Quattrone set the rules for his banking empire as a condition of his move to the firm. The Zurich-based company agreed to pay him more than $20 million annually to beef up its share of IPOs and mergers as the tech sector boomed, sources say.

While the special treatment prompted grumbling among some CSFB employees, Quattrone has delivered for the company: The brokerage moved from No. 4 in IPO underwriting in 1998, with 7% of the market, to No. 2 in 2000, with 16%, according to Thomson Financial/Securities Data. Fees earned from IPOs and merger advice soared with the gain in market share.

Quattrone’s many loyalists say the independence of his team helped it keep pace with the fast-changing tech market. And his move to become a one-stop shop, offering everything from venture capital to IPO financing to merger counsel, brought many clients everything they needed.

One of Quattrone’s major strengths is his long experience with tech companies and their leaders. After a stint as a junior analyst at Morgan Stanley, he earned a Stanford business degree in 1981, the same year as Microsoft CEO Steve Ballmer and Sun Microsystems CEO Scott McNealy.

Rejoining Morgan, he moved up to lead the technology team and moved it to Silicon Valley a year before the landmark Netscape Communications IPO in 1995. He and his followers left Morgan for Deutsche Bank in 1996 and stayed for two years before jumping ship again to CSFB.

Quattrone and his two top lieutenants, analyst Bill Brady and transactions specialist George Boutros, inspired loyalty by demonstrating their own commitment to those who worked under them.

“If you had to call him at 2 in the morning to drive 50 miles to help you with a flat tire, you know that he would do it,” said Bill Gurley, a former CSFB analyst who left to join a venture capital firm. “Disappointing Frank and walking away from him was probably the hardest thing I had to do.”

CSFB declined to make Quattrone available for an interview.

The Quattrone team is fiercely competitive in an industry that rewards the trait, and its leader seems to relish going all out to win--even by using low humor.

Amid competition for the IPO of Internet software firm Intraware Inc. in late 1998, Intraware CEO Peter Jackson complained offhandedly that he was “tired of dragging his ass” from one banker presentation to the next.

The next morning, there was a mule outside Jackson’s office with a bottle of wine and a note: It suggested that if Jackson didn’t want to drag his “ass” any further, he should just pick CSFB.

That clinched the deal, Jackson said.

While the CSFB team is well paid, Quattrone isn’t concerned with the trappings of wealth, associates say. At the karaoke gatherings at which he inflicts his version of “Rocky Raccoon” on clients, “he’ll be up there singing in a sweater that looks like he bought it out of a bin at Target,” an ex-CSFB employee turned Internet executive said.

In pitching new clients, Quattrone’s team may have emphasized the benefits of private banking services more than such competitors as Goldman Sachs and Morgan Stanley, which also are being queried by investigators.

Of the dozen or so investment banks vying to take Intraware public, only CSFB brought along a private banker, CEO Jackson said.

“Mr. [John] Schmidt was in the ‘bake-off’ meeting and pitched his services, which I declined,” Jackson said. “I just more or less like to keep my personal life and my business life separate, for obviously ethical reasons.”

One company that picked CSFB both for its IPO and to manage several executives’ financial accounts is Iprint.com, a business-services firm based in Redwood City.

However, Iprint CEO Royal Farros said private banking services weren’t a significant factor in his choosing CSFB, and he didn’t think the commissions he paid CSFB for private banking services were any different than those charged by other firms.

Farros and many other CSFB clients say they went with Quattrone because of what they describe as his down-to-earth style, the intellectual talent of his team and a track record dating back to the phenomenal IPOs of Netscape and Amazon.com.

“They were people who ‘got’ what we were trying to do,” Farros said of Quattrone and the analysts who worked under him. “The analysts are the ones who are going to explain your story to the institutional investors.”

Some former CSFB employees agreed that the private-banking pitch was a small part of the firm’s come-on.

“It’s a rounding error,” said former CSFB group salesman Ward Clarey. “You hired Frank and his group because you got Frank and his group helping you navigate the waters” of capital-raising.