The name of Republican gubernatorial candidate Meg Whitman, a billionaire who has been defending her ties to embattled investment banking giant Goldman Sachs throughout her campaign, appears in the federal investigation of another Wall Street firm tarnished by scandal.
FOR THE RECORD:
Meg Whitman: An article in the May 30 Section A about gubernatorial candidate Meg Whitman and Credit Suisse First Boston said that a former employee of the investment bank, Frank Quattrone, was indicted twice on charges of obstruction of justice. Quattrone was tried twice on the same indictment. —
Court documents filed by prosecutors in the aftermath of the dot-com bust show Whitman, then chief executive of EBay, listed among about 200 executives who were to receive gifts of deeply discounted stock from Frank Quattrone, then a banker at Credit Suisse First Boston.
A star dealmaker during the late 1990s, Quattrone was twice indicted on obstruction-of-justice charges stemming from a federal investigation of such gifts and other business practices. Regulators charged that the gifts were used as incentives or kickbacks for corporate investment-banking business.
The regulators said the documents suggested that each of the executives listed could steer business to Quattrone’s firm. They show ratings, on a scale of one to four, of the business leaders’ potential to produce such business. Alongside Whitman’s name and an account number is the numeral 2.
Authorities accused Credit Suisse of allocating shares of prime initial public offerings to clients on the list, which became known as “Friends of Frank,” practically guaranteeing them a fortune when the price of the stock soared. The practice became a symbol of the way Wall Street firms rewarded friends and clients at the expense of smaller investors, whose only chance to buy the offerings was after the companies had gone public.
The documents do not show whether Whitman, who acknowledged receiving a special stock deal worth $1.78 million from Goldman Sachs, received stock from Credit Suisse. She declined to discuss any dealings she may have had with Quattrone’s group or to say whether his company ever deposited shares in an account for her.
Her campaign spokesman, Tucker Bounds, responded to those questions in a one-sentence e-mail. “As the leader of a public company and a candidate for governor, Meg’s investments have been heavily reported for more than a decade and the takeaway is that they’ve been 100% completely legal,” he wrote.
Quattrone did not respond to requests for comment.
Now a partner in the San Francisco financial consulting firm Qatalyst, Quattrone became a legend in Silicon Valley in the late 1990s for his ability to woo top executives at tech firms and earn hundreds of millions of dollars in investment banking fees.
Quattrone and his associates “improperly allocated ‘hot’ IPO stock to executives of investment banking clients and improperly managed the purchase and sale of that stock through discretionary trading accounts,” alleges a civil complaint that the Securities and Exchange Commission filed against Credit Suisse in April 2003.
“CSFB’s Technology Group gave improper preferential treatment to these company executives with the belief and expectation that the executives would steer investment banking business for their companies to CSFB. These executives profited from their allocations of ‘hot’ IPO stock,” the complaint says.
Quattrone was not a named as a defendant in the civil case. But in a related criminal trial in 2003, prosecutors accused him of obstructing justice by sending an e-mail to employees encouraging them to “clean up” their files after it was clear his unit was under investigation. Quattrone argued that he hadn’t known about the investigation when he sent the e-mail.
At trial, prosecutors introduced a March 2000 e-mail from a Quattrone subordinate with names of and account numbers for about 200 executives attached. The subordinate urges Quattrone and others to secure more shares to dole out, to give Credit Suisse an advantage over competing Wall Street firms Morgan Stanley and Goldman Sachs.
“In order to keep up the allocations and make it meaningful to your clients we need to increase the amount of stock that we receive — instead of Morganing them or Goldmaning them,” the e-mail says. “These people love you guys all ready and this account reinforces it.”
The civil complaint against Credit Suisse alleged that Quattrone’s group regularly sent executives on the list unofficial “Performance Reports” that were “meant to ensure that the discretionary account holders were aware of the extraordinary gains being generated for them.”
The complaint did not identify the size of the stock gifts or name those who received them but noted that profits exceeded $1 million for some. The bank agreed to pay $200 million to settle the civil case — which included other conflict-of-interest charges against the firm — the day it was filed. Credit Suisse admitted no wrongdoing but agreed to change its practices.
Quattrone’s first criminal trial ended in a hung jury. He was convicted the second time, but that verdict was overturned by a court of appeals, which ruled that there was enough evidence to support the conviction but that the jury had been given erroneous instructions. The Department of Justice did not try him again.
No charges were brought against the executives on the Credit Suisse list.
In the Goldman Sachs case, Whitman eventually gave EBay shareholders the $1.78 million she made on the stock gift, to settle a lawsuit in which the shareholders said the profit belonged to them, not her.