Dan Gillmor: Quattrone clique disgraced Silicon Valley

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: Dan Gillmor <dgillmor () sjmercury com>
Date: Fri, 07 Mar 2003 10:40:30 -0800
To: Dave Farber <dave () farber net>
Subject: http://www.siliconvalley.com/mld/siliconvalley/5338548.htm

Dan Gillmor: Quattrone clique disgraced Silicon Valley
By Dan Gillmor
Mercury News Technology Columnist

There's little shock value these days in new stories of shifty dealings by
Wall Street insiders.

So disciplinary charges filed Thursday by the NASD (formerly known as the
National Association of Securities Dealers) only amplified the notoriety of
Frank Quattrone, the Silicon Valley investment banker who has come to
personify the worst excesses of the technology-bubble days.

No one could have been amazed at the latest litany of how supposed
``analysts'' at a Wall Street investment bank were part of a scheme to pump
up stock prices as a quid pro quo for lucrative banking business. In this
case, Quattrone's ``everyone was doing it'' defense rings true.

There was some eye-opening detail in NASD's description of Credit Suisse's
practice of ``spinning'' initial-public-offering shares to ``Friends of
Frank'' -- executives of companies with which the firm wanted to do
business. Spinning was a pervasive part of the operation that generated
billions of dollars in fees.

But there's a deep sense of sadness today in seeing how many Silicon Valley
``friends'' Quattrone accumulated in his zeal to dominate technology
investment banking. Thanks to my colleague Deborah Lohse, who obtained a
list of some of these good buddies, we now can put many more names and faces
on the valley's expanding hall of shame.

Keep in mind how this all worked. In the vast majority of cases, according
to NASD and some of the recipients, the Friends of Frank didn't do the
trading. They had ``discretionary'' brokerage accounts. They gave Credit
Suisse brokers control over when to sell the insider shares they had
received.

Like the analysts who praised junk companies, these brokers were better
informed than the average member of the public. The brokers sold the
insiders' shares regularly and usually for significant profits.

The Friends' risk was next to zero. They were being given what insiders
called ``free money'' in the late 1990s. The free money came in big, big
bags. And their companies did business with CSFB -- big business.

``Scandal'' is too small a word for this behavior.

Remember who lost in this spinning. First were the little investors who
bought over-hyped stocks that have since crashed. Second were the companies
selling stock; the huge gains their shares tended to make at the peak of the
bubble meant that the investment bankers were pricing the offerings much too
low. That meant less money in the coffers of small companies, some
promising, that would eventually need every dime.

The other losers were the Friends' own companies -- or, to be more precise,
their investors. If someone was going to make a payoff for
investment-banking business, the money should have gone to the shareholders,
who were truly picking up the bill for the banking fees.

Choosing an investment bank to handle a transaction -- IPO, secondary
offering, merger, whatever -- is serious stuff. Some of the Friends would
undoubtedly have picked CSFB to handle their companies' deals even in an
arms-length environment.

Quattrone, who steadfastly denies any wrongdoing, is enormously talented,
with great knowledge and unparalleled connections. He had a hard-working,
brainy team. But the shareholders of these companies will never know if they
might have gotten a better deal from a different bank.

The Friends of Frank disgraced Silicon Valley. And along with the other
insiders who profited so handsomely at such cost to so many others, they've
just about wrecked American capitalism.
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Dan Gillmor's column appears each Sunday and Wednesday. Visit Dan's online
column, eJournal (www.dangillmor.com). E-mail dgillmor () sjmercury com; phone
(408) 920-5016; fax (408) 920-5917.




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