Former Banker Convicted
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RAY SUAREZ: After deliberating for less than eight hours, a Manhattan jury decided yesterday that former banker Frank Quattrone was guilty of obstructing government investigations into hot stock offerings. In the ’90s, Quattrone was the star investment banker at Credit Suisse First Boston, where he helped manage some of the biggest public stock offerings of the dot-com boom era.
But he was accused in December 2000 of obstructing a federal investigation into how IPO shares were allocated. After hearing of a grand jury, he forwarded an e-mail from a colleague that told other bankers to “clean up those files.” His first trial ended in a hung jury last fall. At the end of his retrial yesterday, he was found guilty of two counts of obstruction of justice and one count of witness tampering.
For more on the trial and its impact, I’m joined by Andrew Ross Sorkin, who covered the trial for the “New York Times”; and Zachary Carter, a former federal prosecutor, and now a partner at the law firm of Dorsey & Whitney. Andrew, help us understand exactly what the government said that Frank Quattrone did.
ANDREW ROSS SORKIN: Well, basically what the government accused Frank Quattrone of was obstructing justice. This is another case of the cover-up that kills you, rather than the underlying crime.
In the fall of 2000, the government, along with the SEC, was investigating whether Credit Suisse First Boston, the bank that Frank Quattrone was working at, was in fact tying these hot IPO allocations these hot stocks, the Amazon.coms of the world, to kickbacks — whether hedge funds were paying them kickbacks. They began this investigation, and as they went along and after they had put out some subpoenas, there was a time that came in December of 2000 when Frank Quattrone forwarded another colleague’s e-mail message.
Actually, the message had just gone out totally by happenstance– the original message– telling folks to clean up their files; it was the holidays, and it was time for them to follow their document retention policy, which is a bit of a misnomer because it means that people should basically purge their files ahead of the potential civil lawsuits– something that is not illegal. In any event, Frank pressed “reply to all” and resent the message, and said, “I strongly advise you to follow these procedures.” And the government decided to prosecute him on the basis that that message meant that he was trying to obstruct justice.
RAY SUAREZ: Zachary Carter, is this one of those charges where it’s just a crime if you do this thing, or did the government have to prove intent?
ZACHARY CARTER: Well, the government had to prove an intent to obstruct justice in this case. And that was one of the challenges, given the fact that this was a very simple transaction that involved the forwarding of an e-mail that was drafted by a colleague.
But what happened in this… at least in the retrial of the case, apparently, was that the prosecution did an effective job of pointing out some of the detail that surrounded this transaction that tended to support the government’s claim that Quattrone acted with the requisite criminal intent, particularly, as one juror cited during the course of an interview after the verdict, that it appeared that Mr. Quattrone began drafting that e- mail the evening before it was actually forwarded; also combined with the testimony of counsel, the former counsel for the company, that he had clearly been advised that there was an ongoing investigation prior to sending the e-mail, and also that he was… he would be well advised to seek personal counsel.
RAY SUAREZ: Andrew, as Zachary Carter just mentioned, this was a retrial. The first ended in a hung jury. From your reporting, it sounds like both Quattrone and his team were genuinely surprised when the verdict came down.
ANDREW ROSS SORKIN: Oh, I think everyone was surprised. The last jury was hung. There were three jurors ready to acquit, and eight prepared to convict. By all measures, there appeared to be a feeling in the courtroom that the defense had put on a stronger case than they had the first time around, and as a result, I think everyone was waiting for an acquittal verdict. In fact, the verdict came only seven hours in, and it had taken the other jury almost a week.
So there was an expectation, if they’re coming back this quickly, that they probably were not prepared to convict. In fact, everyone in the court was almost… there were good spirits when we first heard of the verdict about to come. And so it was a bit of a shock, I have to say. There was stunned silence. There was not… I don’t think anyone spoke for close to 15 minutes after the verdict was read out loud.
RAY SUAREZ: Frank Quattrone took the stand in both trials. Did that end up having an effect the second time around?
ANDREW ROSS SORKIN: Well, the jurors… it’s very interesting. During the first trial, several of the jurors had said that Mr. Quattrone’s testimony actually hurt him, and so there was a big question whether he should have taken the stand the second time around. However, in the second trial, the prosecution was allowed to reread the testimony he gave in the first trial, which I think put some pressure on him to testify again.
By all measures, he did better on the stand the second time around, but having said that, he clearly didn’t do enough. We heard from juror after juror who said that he was believable, but that was his job; he was a great salesman. He rose to the top of his profession, and there was just no way that when he sent this e- mail that he could not have intended to obstruct justice.
RAY SUAREZ: Zachary Carter, how does that square with the conventional wisdom on retrials after a hung jury? Was it a good idea to put Frank Quattrone on the stand?
ZACHARY CARTER: Well, I don’t know that he had very much choice, having testified in the first trial. First of all, the transcript obviously of the testimony in the first trial was available to the prosecution, introduced as an admission in the second. And so in order to explain those parts of his testimony that were read into the record, there was probably little strategic choice but to have him on the stand. But having taken the stand the second trial, the prosecution now had a full transcript of his first testimony to impeach him with, and therefore he was in a catch-22 situation.
Having reviewed with his counsel what were viewed as mistakes in his testimony at the first trial, he would obviously try to make an adjustment and try to deal with those issues in the second trial. But having changed his testimony somewhat in the second trial in order to accommodate those prior mistakes, he could be confronted with those inconsistencies on cross-examination, and therefore his credibility was impaired.
RAY SUAREZ: Andrew Sorkin, you mentioned the cover-up being worse than the crime. In this case, he’s been found guilty of obstructing an investigation. Did the government ever bring a case against Credit Suisse for demanding kickbacks from clients for IPO shares?
ANDREW ROSS SORKIN: There was no criminal case ever brought against Credit Suisse. The SEC had brought a case that was settled by Credit Suisse First Boston. They paid about a $100 million settlement. But there was no case ever brought against Frank Quattrone or any other banker at the firm. And so in many respects, there was this feeling that this was not the Al Capone charge, so to speak, but they were trying to get him on the cover-up and not the underlying crime.
RAY SUAREZ: Zachary Carter, the defense is talking about heading to appeal, in part using the judge’s own reluctance to allow certain exculpatory evidence into trial as their basis for an appeal. What does the record tell us about their chances?
ZACHARY CARTER: Well, I think that that… an appeal on that basis is generally an uphill battle. It will really depend on whether or not the appellate court determines that looking at the total record that the… that Mr. Quattrone was denied a fundamentally fair trial. If there are mistakes that are acknowledged to be mistakes that the judge committed in failing to permit defense counsel to introduce one piece of evidence or another, that may still not be sufficient to overturn his conviction if the appellate court ultimately determines that looking at the totality of the record, that those mistakes did not prejudice the case sufficiently to deny him a fundamentally fair trial, and that consequently those mistakes would be regarded as harmless error.
RAY SUAREZ: And Andrew, finally, there have been a lot of business scandals in the news and a lot of cases that have gone to court in the last few years. Is the Quattrone case a sort of one-off, unique, surprising, or is it something that’s sending an electric shock through Wall Street and the banking world?
ANDREW ROSS SORKIN: I think it is sending an electric shock. You know, as we sit around trying to take meaning away from this, first thing you see happening is prosecutors looking at the cover-up more often necessarily than even the underlying crime. The same happened with Martha Stewart, and I think prosecutors are realizing that it is perhaps easier, an easier case to explain to jurors– the cover- up– rather than what is often complex financial crimes. But I do think in terms of taking away true meaning about this case, that Wall Street’s executives, corporate America, they are going to be much more careful in the future when they press the “send” button on their e-mail next time.
RAY SUAREZ: Gentlemen, thanks a lot.
ANDREW ROSS SORKIN: Thank you.
ZACHARY CARTER: Thank you.