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