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The Collapsing Case Against Banker Frank Quattrone

June 5, 2006

The National Association of Securities Dealers (NASD), a market regulator, has dropped civil charges against former technology investment banker Frank Quattrone. The NASD had accused him of improperly awarding shares in initial public offerings. It appears that all of the charges leveled against Quattrone were baseless and that he was being scapegoated for the collapse of the internet bubble.

Previously, the SEC overturned Quattrone's lifetime ban from the securities industry. Also, a federal appeals court overturned his 2004 conviction for obstruction of justice, finding that the prosecution failed to show intent to obstruct an investigation. Although Quattrone was never charged with an underlying crime, the government claimed he was criminally guilty of "obstructing" its efforts to discover one.

Now, prosecutors are considering whether to try Quattrone criminally a third time (!) in order to punish him for spinning IPOs. This is the practice of allocating shares in risky new companies to preferred clients. Laws against spinning were stiffened after the Internet bubble collapsed, and the government appears adamant about punishing Quattrone for not predicting what kinds of legal actions would become illegal at a future date.

 

Frank Quattrone Gets Last NASD Allegation Dropped

June 1 (Bloomberg) -- Frank Quattrone, the former Credit Suisse Group technology banker, said the NASD dropped its case accusing him of improperly awarding shares in initial public offerings during the Internet boom.

The victory means Quattrone has prevailed in all three cases brought by NASD after the securities industry regulator dismissed the allegations yesterday, Quattrone said today in a statement. Federal prosecutors are deciding whether to try him for a third time after an appeals court in March threw out his conviction on obstruction-of-justice charges.

"We've seen an extraordinary collapse of the government's case against Frank Quattrone,'' said Robert Mintz, a former federal prosecutor and now a partner at McCarter & English in Newark, New Jersey. "You have to believe the government is now wringing its hands, trying to decide whether or not to retry him for a third time under these circumstances.''

The end of the NASD cases eliminates the remaining legal barrier for a return to the securities industry by Quattrone, who was paid $120 million in 2000 as the top banker promoting Internet stocks. Quattrone, who took companies including Amazon.com Inc. public, was accused of playing favorites when awarding shares of the hottest IPOs, and then encouraging employees to discard documents linked to the deals.

[...]

Key Witnesses

NASD said that because many key witnesses have left the securities business since the allegations were first filed in 2004, it no longer has the power to compel their testimony. It "would make no sense to move ahead with this case under current circumstances,'' NASD hearing officer David M. FitzGerald wrote in his order granting the dismissal.

NASD spokeswoman Nancy Condon said the regulator had no comment.

[...]

SEC Overrules NASD

Two months ago, in one of the NASD cases, the U.S. Securities and Exchange Commission threw out Quattrone's lifetime ban from the securities industry. It said NASD had violated its own rules in imposing the penalty after Quattrone declined to testify in a hearing about the matter.

Quattrone's lawyers are negotiating with federal prosecutors in a bid to head off a third criminal trial. The conviction that was overturned in March came after his first trial ended in a hung jury.

Heather Tasker, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, said there has been ``no change in the status of the case.'' She declined to comment on when prosecutors will disclose their plans.

"This is an important victory for Quattrone, but he's not out of the woods yet,'' said Tim Coleman, co-chair of Dewey Ballantine's white collar crime and government investigations practice. ``This may increase the pressure on the government to fight for a conviction to avoid the perception that Quattrone is getting off scot-free,'' said Coleman, who recently left the U.S. Attorney General's office.

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