By Edward Robinson
July 29 (Bloomberg) -- On a cloudless day in May, schoolchildren jam the Tech Museum of Innovation, a tangerine- colored structure in San Jose, California, that showcases the computer revolution. Fifth-grade girls in the Net Planet exhibit test their technology savvy on a flat-panel display.
``Who invented the World Wide Web?'' it asks, listing five names.
``Bill Gates!'' the three shout in unison.
The correct answer is British computer scientist Tim Berners-Lee. Yet if the quiz were to ask who turned the Web into a byword for unprecedented wealth and, ultimately, scandal, then the answer would have to be the Tech Museum's biggest booster and chairman: Frank Quattrone.
No other investment banker did more to enrich Silicon Valley with hot initial public offerings in the 1990s. And no one came to symbolize dot-com excesses more than Quattrone.
A South Philadelphia native armed with a Master of Business Administration from Stanford University, Quattrone ran Credit Suisse First Boston Corp.'s technology banking group from 1998 to 2003. That year, he faced a double-barreled legal salvo. In March, the National Association of Securities Dealers filed a complaint accusing him of giving out IPO shares to favored executives to win investment banking business. In April, federal prosecutors charged him with obstructing justice.
He was convicted in the obstruction case in 2004 and sentenced to 18 months in prison. Two years later, he won his appeal, authorities dropped both cases and he avoided jail.
``He became the poster boy for the bubble,'' says Richard Kramlich, co-founder of New Enterprise Associates, a Menlo Park, California-based venture capital firm.
`Frank's Vindication'
Now, after plummeting from the pinnacle of West Coast investment banking and clawing back to beat federal prosecutors, Quattrone, 52, is out to reclaim his professional life. On March 18, he unveiled his new firm, San Francisco-based Qatalyst Group, which plans to advise companies on acquisitions and raising capital, underwrite equity offerings and invest in deals alongside venture capitalists and buyout firms.
``This is about Frank's vindication,'' says a former CSFB banker who has spoken with him about Qatalyst's prospects. ``He fell about as far as you can, and he wants to prove to the world that he's not only innocent but that he's back.''
`Smartest Banker'
At a time when Wall Street is reeling from another round of financial scandals, Quattrone's career shows how a driven man from humble origins won glory and riches with the right mix of brains and ambition. Yet, at the top of his game amid the greatest bull market in history, he blew through barriers designed to protect investors from conflicts of interest, according to the 2003 NASD complaint.
``He was the smartest banker I ever knew; he could make companies golden,'' says Andy Kessler, an analyst who worked with Quattrone at Morgan Stanley in the 1980s and went on to run Palo Alto, California-based hedge fund firm Velocity Capital Management LLC. ``But he controlled all aspects of the equity issuance business -- and this is where he ran into trouble.''
The saga of Quattrone's unprecedented clout -- and his public downfall -- is a reminder that eight years after the dot-com collapse, Wall Street has yet to heed past lessons. During the tech boom, Quattrone and other bankers took companies public that had no profit, often using hyped-up research to make a market in the shares, according to the NASD, which is now part of the Financial Industry Regulatory Authority, an agency that oversees securities firms and professionals.
Paper Trail
Investors were burned as more than $5 trillion vaporized on the Nasdaq Composite Index from March 2000 to October 2002. Today, amid the mortgage meltdown, $3.5 trillion in home-owner equity has evaporated since the spring of 2006 and the housing market is in its worst slump since the Great Depression.
Just as authorities sought to force Quattrone to answer for alleged misdeeds, they're making arrests in the mortgage mess. On June 19, a federal grand jury in Brooklyn, New York, indicted Ralph Cioffi and Matthew Tannin, former Bear Stearns Cos. hedge fund managers who made leveraged bets on collateralized-debt obligations backed by subprime loans. Beginning in March 2007, Cioffi, 52, and Tannin, 46, allegedly deceived clients by urging them to invest more while the funds were collapsing. Cioffi and Tannin pleaded not guilty.
Once again, otherwise savvy bankers left a paper trail of e- mails that prosecutors seized on. This time, the electronic correspondence bemoaned the deterioration of funds the bankers were touting, according to the indictment.
`Gold Mine'
``E-mail is the first place prosecutors look to try and discover what somebody's intent was,'' says Miles Ehrlich, a former federal prosecutor who's now at Berkeley, California-based Ramsey & Ehrlich LLP. ``It's been a gold mine for prosecutors for a decade.''
For Quattrone, who at his team's peak in 2000 handled financings and M&A assignments valued at $341 billion, a single e- mail tarnished a career -- and a reputation -- that took decades to build.
The son of a garment worker, Quattrone escaped the gritty wards of South Philly with scholarships to a Jesuit high school and the University of Pennsylvania's Wharton School. He headed west in 1979 at the dawn of the personal computer age, determined to gain wealth and power as a force in Silicon Valley, a VC who has known Quattrone for 20 years says. He hosted ski parties for clients in Aspen, Colorado, and bought a four-bedroom vacation home near one owned by discount brokerage king Charles Schwab on the fairways of Pebble Beach, California.
He became a Valley cheerleader through the Tech Museum, which features the handiwork of icons he took public including Cisco Systems Inc. and Netscape Communications Corp. In the end, he flew too high and almost paid with his freedom.
18 Month Prison Sentence
``Quattrone created and oversaw at CSFB an anomalous reporting and supervisory structure in which traditional lines of demarcation among the various functions of a securities firm were obliterated,'' the March 2003 NASD complaint said.
By erasing safeguards, Quattrone's Technology Group was able to dole out IPOs to enrich insiders dubbed the ``Friends of Frank'' at the expense of the investing public, the complaint said. According to the NASD, the practice, called spinning, violated its ethics and gratuity rules.
In April 2003, the federal prosecutors in New York charged Quattrone with obstruction of justice and two related charges after he wrote an e-mail strongly advising CSFB bankers to destroy underwriting records.
`Absolutely Not'
Quattrone testified he was innocent and had sent the e-mail in accordance with CSFB's document management policy. Asked at his second trial in 2004 by his lawyer, John Keker, if he'd written the e-mail to thwart IPO investigations, Quattrone said, ``Absolutely not.''
The jury didn't buy it. Quattrone was convicted in 2004, sentenced to 18 months in prison and barred from working in the financial markets for life.
Then, in a rare turnaround two years later, a federal appeals court threw out the conviction. The court found that the trial judge had erred in his instructions by failing to tell the jury that to convict Quattrone it must find that he intended to destroy documents relevant to a pending grand jury investigation.
Unlike Michael Milken, the Drexel Burnham Lambert Inc. junk bond king who served 22 months in federal prison for securities fraud and related crimes, Quattrone was cleared before he ever spent a day behind bars.
Quattrone's Comeback
Quattrone's comeback has set VCs and entrepreneurs buzzing about whether he can restore his name and reclaim the clients who once flooded his Palo Alto office.
``He beat the legal rap. But on Wall Street, all you really have is your reputation, and he took a hit to his,'' Velocity Capital's Kessler says. ``He's going to have to dig himself out of that, and maybe he will, and maybe he won't.''
Three weeks after Qatalyst opened, Quattrone bagged a high- profile job: Google Inc. Chief Executive Officer Eric Schmidt, an old friend, sought his advice on how Microsoft Corp.'s hostile $47.5 billion bid for Yahoo! Inc. would affect Google.
Quattrone declined to be interviewed for this article.
``As you might imagine right now, things are a bit hectic with all the things a startup has to get done,'' he wrote in a March 18 e-mail.
Quattrone is plunging back into the fray at a dismal time for what he knows best -- IPOs. Through July 28, 383 companies went public worldwide, down from 702 a year earlier -- the slowest pace since 2003, according to data compiled by Bloomberg. There were no venture-backed IPOs in the U.S. during the second quarter, the first time in 30 years such a period passed, according to the National Venture Capital Association and Thomson Reuters Plc.
`IPOs Are Impractical'
``IPOs are impractical for many small companies now,'' says Penny Herscher, CEO of research firm FirstRain Inc. in Foster City, California. For one thing, the Sarbanes-Oxley Act of 2002, which requires company officers to certify their accounting, has significantly increased compliance costs for young firms, the NVCA estimates.
Still, it wouldn't be the first time Quattrone turned tough circumstances into an avenue for profit. In 1981, after earning his MBA, he started as a junior banker in Morgan Stanley's Palo Alto outpost. With the PC boom still years away, Wall Street West was a backwater most ambitious bankers shunned.
Yet Quattrone staked his claim to the tech revolution emerging around him. During the next 15 years, he learned the intricacies of young computer, software and Internet companies and gained a reputation as someone techies could trust.
Our Way Is Best
Ensconced 3,000 miles from New York, Quattrone began building his stable of tech-savvy bankers and agitating for the independence to run them unfettered by marching orders from headquarters, the former CSFB banker says. In 1998, CSFB, which is now known as Credit Suisse Securities USA LLC, granted him authority to lead the group as he saw fit. CSFB's then CEO Allen Wheat even gave Quattrone half the revenue the team generated, minus some costs, to dispense as compensation.
``It's no longer about the money,'' Quattrone said in a Bloomberg News interview in 2000. ``It's about proving that our way of doing things is best.''
Quattrone may have taken his power too far. Turning the Technology Group into a financial factory for IPOs, he controlled every step in the assembly line -- from research to underwriting, to share allocation, according to transcripts from Quattrone's trials and the 2003 NASD complaint.
``I don't think you can blame one person for the bubble,'' says Jay Ritter, a professor at the University of Florida who specializes in IPOs. ``But the excesses might not have been as extreme were it not for Frank Quattrone.''
Reclaiming His Throne
Reclaiming his throne after a five-year absence won't be easy. The time when small and influential firms such as Robertson Stephens Inc., Montgomery Securities and Hambrecht & Quist Inc. led the Valley's finance game ended a decade ago.
Today, tech banking is dominated by Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Quattrone's old employer, Credit Suisse Securities USA, a unit of Zurich-based Credit Suisse Group AG.
Those banks, along with Lehman Brothers Holdings Inc., advised on 220 tech deals valued at $348.7 billion for the 18 months ended on June 30. That's more than the next 15 banks combined, according to Bloomberg data.
The top San Francisco boutique, Thomas Weisel Partners Group Inc., was No. 29, with 10 transactions valued at $1.2 billion.
``Before, he had a well-oiled machine with a bulge bracket behind him,'' says the former CSFB banker. ``Now, people can say no to him. It's going to be very difficult for Frank to reclaim his past glory.''
`Favorable Research'
Quattrone will also be navigating a landscape transformed in part by his own record. After the tech bust, regulators led by then New York Attorney General Eliot Spitzer sought to end Wall Street's use of allegedly misleading equity research to tout the stocks of investment banking clients.
In December 2002, authorities struck a $1.4 billion settlement with 10 banks, including Merrill Lynch & Co., Citigroup and CSFB, none of which admitted or denied wrongdoing. Regulators singled out Quattrone's Technology Group as a prime offender at CSFB.
``In certain instances, CSFB's marketing, or `pitch,' materials implicitly promised that a company would receive favorable research if it agreed to use CSFB for its investment banking business,'' the Securities and Exchange Commission said in the global settlement.
Under the settlement, the banks were barred from using equity research to win investment banking business, and ceased rewarding analysts with compensation for helping win underwriting assignments. Credit Suisse Securities USA spokeswoman Victoria Harmon declined to comment.
`Witch Hunt'
More than five years later, Quattrone says Spitzer's global settlement is preventing venture-backed companies from going public because Wall Street no longer deploys analysts to build support for small firms. Moderating a panel on startups at a Stanford University conference on July 23, Quattrone blasted the settlement's separation of research and investment banking.
``The industry should petition to remove the Spitzer initiatives because ultimately they hurt the competitiveness of our country by denying small companies access to research analysts,'' Quattrone said. ``All he did was to take two research analysts who might have told untruths and turn it into an industrywide witch hunt, which basically shut down sell-side research for companies like many in this audience that are trying to change the world.''
One analyst he was referring to was Merrill Lynch's Henry Blodget, who was banned from working in the securities markets and paid $4 million in fines and disgorgement after the SEC found he had misled investors with hyped-up research. The second was Jack Grubman, a Salomon Smith Barney analyst who paid $15 million in penalties and disgorgement and was also banned from the markets after the SEC alleged he published fraudulent research to win investment banking business. Neither Grubman nor Blodget admitted or denied wrongdoing in their settlements with SEC.
M&A Advice
Today, Quattrone's best opportunity lies in M&A advice. The U.S. technology industry has produced 60 deals of at least $1 billion apiece in the two and a half years ended on June 30, Bloomberg data show. The deals sport an aggregate value of $280.5 billion, topping the glory years of 1999 and 2000 when companies carried out 83 like-sized transactions valued at $265.7 billion.
Giants such as Hewlett-Packard Co., which is executing a friendly $13 billion takeover of Electronic Data Systems Corp., are still on the hunt.
Venture-backed Web firms such as Facebook Inc. and LinkedIn Corp. are poised to go public or engage in their own dealmaking. Meantime, billionaire financier Carl Icahn will become a Yahoo director after mounting a proxy fight to replace the search engine firm's board. His presence may resurrect Microsoft's takeover bid for Yahoo.
Quattrone's Network
Quattrone's main asset is the network he cultivated during his 22-year West Coast career. Working with trailblazers such as super-VC John Doerr at Kleiner Perkins Caulfield & Byers, who backed Netscape and Google; Amazon.com Inc. founder Jeff Bezos; and billionaire entrepreneur Jim Clark, Quattrone helped morph an enclave of pocket-protector-clad nerds into the center of the financial universe.
When the Nasdaq crested at 5,048.62 on March 10, 2000, it boasted $6.7 trillion in market value, 800 times its capitalization on that date in 1995. In 2000, Quattrone's team, which consisted of 400 bankers, bested arch rivals Goldman Sachs and Morgan Stanley in IPOs and M&A.
``Frank delivered,'' says William Campbell, chairman of Mountain View, California-based software firm Intuit Inc., which Quattrone took public in 1993. ``He's one of the guys who built this Valley, and he won a lot of friends.''
He also made money. Quattrone pocketed about $100 million in back pay after the charges were dropped, adding to more than $200 million in compensation from CSFB from 1998 to 2001.
Philly Roots
Frank Peter Quattrone has always been a striver. He grew up in an Italian working-class district wedged between shipyards on the Delaware River and Sunoco Inc.'s massive refinery. His father pressed trousers in a garment factory and was a union representative.
His mother was a homemaker in Stella Maris parish, where large Catholic families clustered in adjacent brick row homes and left their doors open without worry, says Mary Pilla, who's lived on South Darien Street for 50 years. Half a block from Pilla's place is the Quattrones' old residence, empty and clad in dirty beige stucco with a rusted air conditioner perched in the top window.
Quattrone's South Philly neighborhood hasn't changed much. On a broiling June Saturday, pickups loaded with fresh crabs from the Jersey Shore park on West Oregon Street. Inside a cafe, men chat in Italian as they prepare for their daily round of a card game called scopa.
Tony's Market
At Tony's Market, Frank and Anthony Matozzo reminisce with mixed feelings. For all its traditions, South Philly is a tough, inner- city neighborhood. Families like the Matozzos, and the Quattrones, for that matter, labored to make sure their children moved on to more prosperous lives.
``Frank wasn't brought up with money,'' says Frank Matozzo, 59, whose family has run the store for 46 years. ``But he had the knowledge and the cogliones to achieve so much.''
Quattrone took his first step toward that future in 1969 when he entered St. Joseph's Preparatory School in North Philadelphia. Scoring in the top 15 out of 900 students who took the entrance exam, he earned a four-year scholarship, says Henry Bender, a classics teacher at St. Joe's at the time. Young Frankie proved popular with his easy sense of humor, and he wasn't shy about raising his hand when he knew an answer.
Opting for three years of Ancient Greek in addition to the required four of Latin, Quattrone showed great self-discipline, Bender says. What impressed his teacher was Quattrone's gift for comprehending how word endings in that ancient language changed the meaning of sentences in nuanced yet crucial ways.
`Whole Picture'
``He would perceive the whole picture without losing a sense of the parts,'' says Bender, 63, now head of humanities at the Hill School in Pottstown, Pennsylvania. It was a skill that helped Quattrone comprehend a world as codified in its own way as ancient Greece: Silicon Valley.
Quattrone graduated from Wharton in 1977 and moved to New York as a corporate finance analyst at Morgan Stanley. His annual pay: $12,500. When he rejoined Morgan Stanley as an investment banker with his Stanford MBA, he almost tripled his salary to $35,000. He and his wife, Denise, another South Philly native, settled in California for good.
Quattrone took to his new West Coast life. He learned the lingo of tech entrepreneurs and joined them for Stanford football games and golf, honing a handicap in the low double digits. He shunned a banker's suit and tie for the Valley's open-collar shirt, chinos and sweater.
Good Listener
Most important, Quattrone listened carefully to the techies' often exotic business plans and provided sound advice, Intuit's Campbell says. In 1987, Campbell, then executive vice president of marketing at Apple Computer Inc., led the spinoff of Claris Corp., which housed the MacWrite and MacPaint programs.
Campbell says Apple was urging him to take on debt to finance the spinoff. Quattrone advised him to see how many software firms carried substantial debt loads. The answer: very few, because software companies are reluctant to weigh down their balance sheets when industry cycles pressure earnings.
Campbell appreciated the heads-up.
``We were trying to get the company started, and we didn't have anyone we could rely on,'' he says. ``We didn't want to give away the ranch.''
Campbell remained Quattrone's client for the next 16 years. In 1998, Claris was reorganized as FileMaker Inc.
Cisco, Netscape
Quattrone worked feverishly to knock out deals, including Cisco in 1990 and Netscape in 1995. Cisco went on to become the No. 1 Internet gear maker; its stock has returned 36 percent on an annualized basis since going public. Netscape's Navigator Web browser transformed the Internet into a worldwide phenomenon.
He pulled all-nighters and hopped red-eye flights to Washington to review registration filings with SEC staffers, says a VC who worked with him. In meetings to plot an IPO or an acquisition, he'd open with a succinct recommendation. Often there were more than a dozen bankers, executives and lawyers, so talks dragged on.
Rather than fidget, Quattrone would grow still, even blink his eyes less quickly, the VC says.
``It was almost like he was slowing his heartbeat down, just waiting for people to catch up,'' he says. Usually, the meeting ended by embracing the idea Quattrone had crystallized at the opening.
In April 1996, Quattrone and his deputies, George Boutros and William Brady, joined Deutsche Bank AG and formed Palo Alto-based DMG Technology Group. Quattrone took control of research in addition to the investment banking team, thus eroding the safeguards designed to prevent conflicts of interest, the NASD said.
Mass Defection
He didn't stay long. In July 1998, he and his team, by then 130 strong, defected en masse to CSFB to form its Technology Group. The move was startling even in an era in which rivals routinely poached star bankers. The piece de resistance was the revenue-sharing deal. In 1999 and 2000, the Tech Group generated about 12-15 percent of CSFB's $22 billion in total revenue, Philip Ryan, CSFB's then chief financial officer, told Bloomberg News in 2003. That meant Quattrone's group took home about $1.3 billion in gross revenue sharing in the period.
Free to disburse staff bonuses from the pool, Quattrone created an IPO machine the likes of which Wall Street had never seen. Research analysts earning $100,000-$250,000 could make $5 million-$10 million in annual bonuses if they contributed to winning investment banking business, according to the 2003 NASD complaint.
Final decisions for those windfalls lay with Quattrone and his deputies in corporate finance and M&A. Analysts were reduced to being ``marketing tools'' for winning investment banking customers, and bankers made it clear they would maintain positive ratings even if a company announced results below estimates, the NASD complaint states.
According to Kessler, Quattrone told clients such nimbleness separated his group from rivals.
`Pull the Strings'
``He liked to say he was a boutique inside a bulge bracket,'' recalls Kessler, author of ``Wall Street Meat: My Narrow Escape from the Stock Market Grinder'' (HarperCollins, 2004). ``It was like what Milken had at Drexel.''
The special arrangement bore the seeds of disaster, IPO specialist Ritter says. For years, many Wall Street firms used IPO shares to gain clients, he says. What set Quattrone apart was the organization he brought to the process.
The Tech Group's Private Client Services team, which reported to Quattrone, formed more than 300 accounts for executives and VCs who'd gotten IPO allocations. The group even sent monthly statements showing the eye-popping gains, according to trial transcripts and the NASD complaint.
``Rather than using these practices on an ad hoc basis, CSFB institutionalized the process,'' Ritter says. ``Quattrone was able to pull the strings of all the puppets.''
Dot-Com Excesses
By the summer of 2000, the dot-com craze had become so unhinged that Quattrone and his peers at other banks were underwriting IPOs for companies with no sales, let alone profit. As heavyweights such as Michael Dell, founder and CEO of Dell Computer Corp., sought hot shares, Quattrone blurred the lines between research, IPO allotments and investment banking mandates, court records show.
``My team has gotten word to me that you are personally interested in having Dell Ventures receive a meaningful allocation on the IPO of Corvis,'' Quattrone wrote in an e-mail to Dell on July 26, 2000, according to Quattrone's testimony in his 2003 criminal trial. Corvis Inc. was a fiber-optics firm that had yet to book a penny of sales.
In two days, CSFB was taking it public amid high demand. Dell wanted shares for his firm's now-defunct venture arm and MSD Capital LP, which invests his fortune, according to testimony.
`Complete Zoo'
``We anticipate this will be a complete zoo, so I wanted to check if your interest was really there,'' Quattrone's e-mail continued. The banker also asked whether Dell could keynote CSFB's investor conference that November and ran the name of a computer analyst by him to see if he met with Dell's approval.
``We are still trying to finalize our selection of a PC analyst (slim pickings). How would you react to Charlie Wolf?'' he asked Dell.
``We would like 250K shares of Corvis,'' Dell replied in an e- mail. ``I know there have been efforts on both sides to build the relationship and an offering like this would certainly help.''
Asked by prosecutor Steven Peikin whether this meant CSFB might receive investment banking business from Dell Ventures, Quattrone said, ``It might.'' Dell spokesman Jess Blackburn says Dell declined to comment on the e-mail. Dell was never accused of wrongdoing in connection with the Quattrone case.
At the time of the exchange, CSFB lawyers had already told Quattrone the NASD was investigating the Tech Group's allocation of shares in software firm VA Linux Systems Inc.'s December 1999 IPO. VA Linux shares had surged almost eightfold for the best first-day performance of any U.S. IPO that decade.
`Clean Up Those Files'
Lawyers directed him to preserve documents related to the IPO process, according to trial transcripts. By December, he learned the SEC and a federal grand jury had joined the probe, according to the transcripts.
On Dec. 4, 2000, Richard Char, a banker in Quattrone's group, sent an e-mail to the Tech Group headlined ``Time to clean up those files.''
``With the recent tumble in stock prices, and many deals now trading below issue price, the securities litigation bar is expected to [sic] an all out assault on broken tech IPOs. In the spirit of the end of the year (and the slow down in corporate finance work) we want to remind you of the CSFB document retention policy.''
Char, unaware of the investigation, directed the team to discard internal memos and nonessential records that might be sought as evidence. Char was never charged with wrongdoing.
The next day, David Brodsky, CSFB's general counsel for the Americas, phoned Quattrone with bad news, according to his trial testimony: The grand jury and the SEC were likely to call him as a witness, and he should retain his own lawyer.
Quattrone's E-Mail
Four-and-a-half hours later, Quattrone sent the e-mail that would get him indicted: At the top of Char's message, he wrote ``having been a key witness in a securities litigation case in south texas (miniscribe) i strongly advise you to follow these procedures'' and forwarded it to his team. Miniscribe was a client that had been the subject of litigation.
For the next year, authorities pursued their probes of Quattrone's Tech Group. The pace accelerated on Jan. 22, 2002. CSFB agreed to pay $100 million to settle charges of ``abusive IPO allocation practices'' tied to spinning, or the practice in which banks doled out hot shares to induce executives to steer business their way. CSFB didn't admit liability.
The next month, CSFB put Quattrone on administrative leave pending an internal probe. He quit on March 4, 2003. Two days later, the NASD sued him. Then on April 23, the U.S. Attorney's office in Manhattan charged him with obstruction of justice, obstruction of agency proceedings and witness tampering.
Prosecutors said Quattrone, intent on preventing investigators from finding records that would reveal his IPO kickback schemes, sent the Dec. 5, 2000, e-mail to destroy such evidence.
Two Trials
His trial began in September 2003. After six days of deliberating, an 11-member jury deadlocked, with eight voting to convict. Judge Richard Owen declared a mistrial. Quattrone's second trial began on April 13, 2004. This time prosecutors won a conviction. Quattrone appealed.
Almost two years later, a three-judge panel of the U.S. Court of Appeals for the Second Circuit found prosecutors had presented sufficient evidence to convict Quattrone of obstruction of justice. Even so, the panel ruled unanimously that had the jury been properly instructed by the trial judge, it may not have found Quattrone guilty. The court ordered a new trial with a new judge.
U.S. Attorney Michael Garcia decided not to retry Quattrone, giving the banker a legal victory.
`Thin Reed'
``The Quattrone case was always built on a thin reed of criminality because it turned on what was in his mind when the e- mail was sent,'' says Robert Mintz, a partner at Newark, New Jersey- based McCarter & English LLP.
On May 31, 2006, the NASD withdrew its complaint with prejudice, meaning it could not restart the case. The same day, Quattrone filed a motion asking for dismissal of the complaint. David FitzGerald, an NASD hearing officer, ruled that so much time had passed that key witnesses were no longer subject to the agency's jurisdiction and the case should be dropped. The NASD had suspended its civil case at the outset of the criminal proceedings, pending their outcome.
In August 2007, a U.S. judge approved dismissal of the criminal case charges. Quattrone never paid a fine or admitted any wrongdoing. Regulators rescinded their ban on Quattrone's working on Wall Street. He was free to resume his career in the securities industry.
Spinning Rules
As for spinning, the practice wasn't explicitly prohibited by the NASD. The organization had alleged that Quattrone violated NASD Rule 3060, which bars securities professionals from giving gifts of more than $100 to anyone who may steer business their way. It also accused him of breaking Rule 2110, which requires ethical conduct. In 2002, the agency proposed new rules on spinning. The SEC, which approves securities regulations, has been sitting on them. SEC spokesman John Nester declined to comment.
Quattrone has little desire to rebuild the machine he ran at CSFB, friends say. A golf nut, he could easily spend his days pondering the nuances of woods and irons instead of valuations and term sheets.
``He doesn't want to get back in the rat race of pursuing every IPO and trying to get every deal,'' Campbell says. ``He's in the mode of having a small advisory focus.''
In the meantime, entrepreneurs have been calling. Zack Rinat, founder of Model N Inc., a Redwood City, California-based software maker that may go public next year, has spoken with Quattrone.
`Happy He's Back'
``I'm happy he's back,'' says Rinat, who sought Quattrone's advice when he sold his last firm, NetDynamics Inc., to Sun Microsystems Inc. in 1998. ``He has a passion for the game.''
The question Quattrone faces now is whether he's still tainted by his past, says Phillip Phan, a finance professor at Johns Hopkins University in Baltimore who specializes in corporate governance. Phan says companies and institutional investors may balk at associations with Quattrone even if he did beat the government.
``Silicon Valley is full of failure-to-success stories,'' Phan says. ``But Quattrone's failure is a moral one, and the reputation effect can't be underestimated.''
Techland is famous for its obsession with the idea that a person can fail and start anew. After weathering a four-year legal crucible, Quattrone has won that rare second chance. Summoning the self-discipline to excel at school and leave South Philly behind, he grew rich as he became the most powerful banker of the technology revolution.
Now, the one-time star is trying to reclaim his perch without the practices that helped drive his success. Even after all of this time, Quattrone's biggest challenge may still be living down the repercussions of a single e-mail message he sent almost eight years ago.
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