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Trial shows cozy tech boom ties { October 14 2003 } Original Source Link: (May no longer be active)
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/10/14/BUG2O2AGMN1.DTL&type=businesshttp://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/10/14/BUG2O2AGMN1.DTL&type=business
Trial shows cozy tech-boom ties
E-mails between Quattrone and Dell introduced as evidence
Andrew Ross Sorkin, New York Times
Tuesday, October 14, 2003
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New York -- - A telling glimpse into the relationship between Wall Street and corporate America during the technology stock boom has emerged from e-mail exchanges introduced as evidence late last week in the federal trial of Frank Quattrone, the former star technology banker at Credit Suisse First Boston.
While not exposing anything illegal on its face, the e-mail exchanges in summer 2000 between Quattrone and Michael Dell, the founder and chairman of Dell Computer, provide evidence of the quid pro quo arrangements that were widely believed to have been made between investment bankers and corporate executives during the technology stock boom that ended in 2000.
During the boom, bankers often tried to attract new business by offering corporate executives access to hot initial public offerings, while executives offered the possibility of giving them business in exchange for the shares.
During cross-examination of Quattrone, federal prosecutors introduced into evidence government Exhibit No. 1060, a July 2000 e-mail exchange discussing the chance to reserve shares in the IPO of Corvis, an optical networking company. Under such an allocation arrangement, the recipient would be able to buy the shares at the initial offering price, while most other investors would have to wait until after actual trading began -- often missing out on early gains.
"My team has gotten word to me that you are personally interested in having Dell Ventures receive a meaningful allocation of the IPO of Corvis," Quattrone wrote to Dell. "Given the intense interest in this space, we anticipate this will be a complete zoo, so I wanted to check if your interest was really there." Dell Ventures is the company's investment arm.
Quattrone also asked if Dell would be available to be the keynote speaker at Credit Suisse First Boston's technology conference, an annual gathering for technology chiefs in Scottsdale, Ariz.
And then, in the same message, the supposed wall between investment banking and research was breached. Quattrone asked Dell whether First Boston should hire a certain research analyst to cover computing, noting, "We are still trying to finalize our selection of a pc analyst (slim pickings.)" Dell is the largest maker of PCs.
Dell's reply was no less direct. "We would like 250k shares of Corvis," Dell wrote. "I know there have been efforts on both sides to build the relationship, and an offering like this would certainly help."
He also said he would be available to speak at the technology conference, but only "if our IR team wants me to go," he said referring to his investor relations staff. He added, "They may be waiting to see who your PC analyst is."
Dell made it clear that the proposed analyst candidate would not do, saying he had consulted Dell's senior vice president of business development and strategy, Tom Meredith, who had been dismissive. "I would tend to agree," Dell wrote. "Not sure he has credibility anymore with the street. You might be better off with a fresh new talent."
Repeated telephone calls over the weekend seeking comment from Dell or Dell Computer were not returned. A spokesman for Quattrone and his legal team declined to comment.
The e-mail transcript was introduced as evidence Friday afternoon by federal prosecutors who are trying to prove that Quattrone obstructed a government investigation into Credit Suisse First Boston's procedures for handling IPOs. Reporters did not receive copies of the messages until after the trial was recessed late Friday afternoon.
The e-mail exchange between Quattrone and Dell took place on July 26, two days before the Corvis IPO. People who received the pre-trading allocations would have been able to buy them at the offering price of $36.
The stock immediately jumped to $95 as the market opened on July 28 and rose as high as $98 before closing that day at $84.68 -- a gain of 135 percent over the offering price.
Later on July 26, a person responsible for managing Dell's personal investments sent Quattrone an e-mail message making it even clearer that if Dell were given an allocation of the Corvis stock offering, First Boston would get investment banking business.
"We know this is a tough one, but we wanted to ask for a little help with our Corvis allocation," wrote Glenn R. Fuhrman, a managing director of MSD Capital, a firm set up to manage the money of Dell and his family. "We are looking forward to making you our 'Go To' banker," Fuhrman continued. "We know how crazy this one must be but ask for a little help as it is a sincere interest for us."
Although Dell received an allocation of Corvis shares, Dell Computer never became a First Boston banking client.
The e-mail evidence introduced in the Quattrone case is not the first example of close dealings between First Boston and corporate clients or would- be clients.
Last April, the company paid $200 million as part of a $1.4 billion industrywide settlement with the Securities and Exchange Commission over its conflicts of interest in securities research.
In particular, First Boston was accused of currying favor with its corporate clients by selling hot stock offerings to senior executives, who could then turn around and sell the shares for virtually guaranteed profit.
Just a month before that settlement, NASD, the regulatory body for the Nasdaq market, filed two complaints against Quattrone, saying that he breached a host of securities regulations during the stock market boom.
The NASD has accused Quattrone of improperly pressuring his analysts and passing hot offerings to clients in return for banking business.
At the time of the NASD complaint, which is still pending, a spokesman for Quattrone said in a statement, "The NASD charges are completely without merit and represent an unprecedented attempt to take punitive action against an individual for conduct that was legal at the time and widespread throughout the industry."
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