Tony Avelar/Bloomberg NewsFrank Quattrone, chief of Qatalyst Partners.
Frank P. Quattrone is on a roll. This month the technology banker and his firm, Qatalyst Partners, advised on two multibillion-dollar mergers. The deals add to a string of assignments that have re-established Mr. Quattrone as Silicon Valley’s marquee deal maker.
Now a judge has issued a decision that throws some cold water on Mr. Quattrone’s hot streak.
Judge Nancy Gertner of Federal District Court in Boston on Friday denied a request by Mr. Quattrone and his co-defendants to dismiss a decade-old lawsuit that charges his former bank, Credit Suisse First Boston, with issuing misleading stock research on AOL–Time Warner. The case now proceeds to trial.
The ruling comes as a new wave of analysts covering companies like Facebook and Groupon are securing large pay packages from investment banks. This latest Internet craze calls to mind a decade ago when dot-com analysts were Wall Street’s darlings. Jack Grubman, Henry Blodget and Mary Meeker earned millions of dollars publishing research on the darlings of the tech boom.
As for Mr. Quattrone, he was the era’s rock-star banker, advising on dozens of initial public offerings for companies including Cisco Systems and Amazon.com.
Then came the dot-com bust. Eliot Spitzer, then the New York attorney general, exposed the rife conflicts of interest between Wall Street firms’ investment banking and stock research arms. The Justice Department charged Mr. Quattrone with interfering with an investigation into whether Credit Suisse First Boston allocated “hot” I.P.O.’s to preferred clients. The National Association of Securities Dealers also brought a civil claim that Mr. Quattrone headed “a flawed organizational structure that undermined research analyst objectivity.”
After spending the better part of last decade fighting an array of charges, Mr. Quattrone prevailed. Federal prosecutors dropped their criminal obstruction-of-justice case in 2006 after two trials. The N.A.S.D. also jettisoned its claim.
Yet plaintiffs’ firms also filed dozens of shareholder lawsuits against the banks and their executives on the heels of these government investigations. Mr. Quattrone has successfully fended off 11 civil lawsuits filed against him related to his dot-com era conduct.
Only the Massachusetts case remains. The wheels of justice have turned especially slowly in the lawsuit. Judge Gertler, who is retiring this week, took more than two years to rule on the defendants’ summary judgment motion.
Shareholders who owned AOL-Time Warner in 2001 and 2002 accuse Credit Suisse First Boston of publishing misleading reports about AOL’s financial prospects in order to curry favor with the media company. Also named in the complaint are two Credit Suisse First Boston research analysts, James Kiggen and Laura Martin; Elliott Rogers, the head of research; and Mr. Quattrone. Mr. Rogers and Mr. Quattrone’s supposed liability stems not from issuing any false statements but from supervising the analysts who did.
Plaintiffs discovered scores of internal e-mails that, the court says, suggest that Credit Suisse First Boston did not believe its rosy research reports on the future of AOL-Time Warner, a boom-era merger now widely considered among the worst corporate combinations in history. For example, Ms. Martin said in an internal e-mail that she “would NOT lower numbers on AOL, even though they can’t make them” to avoid angering the company. The judge also notes that e-mails “strongly suggest that AOL was being given editorial control over the C.S.F.B. reports.”
Mr. Quattrone has denied the claims against him, insisting that he had no involvement or supervisory responsibility for the research reports at issue.
“The decision denying summary judgment and allowing this case to go to trial is in error, and we plan to bring this to the court’s attention with a motion for reconsideration,” said Kenneth G. Hausman, a lawyer for Mr. Quattrone. Credit Suisse First Boston and the other defendants have also denied the charges.
The judge, however, said that the evidence against Mr. Quattrone and Mr. Rogers suggested that they “created or contributed to the pressure to appease potential banking clients through the reports that were issued, that they continuously and specifically exerted influence over Kiggen and Martin, and that they went so far as to sanction the muffling of Martin’s negative AOL analyses and views.”
She continued: “A jury could reasonably infer that they did so to curry favor with AOL in the hopes of obtaining lucrative investment banking business, and as such, their actions were not remotely in good faith.”
Notwithstanding the judge’s harsh language, Mr. Quattrone has had a stellar year, advising on $27 billion worth of technology mergers so far. With his two big deals this month — advising Autonomy on its $11.7 billion sale to Hewlett-Packard and Motorola Mobility in its $12.5 billion takeover by Google — Mr. Quattrone and his Qatalyst partners have earned an estimated $34.2 million in fees this year, according to Thomson Reuters and Freeman Consulting.
Ruling on Credit Suisse-AOL securities litigation
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