NEW YORK (CNN/Money) -
Frank Quattrone, who helped bring technology companies public as a Credit Suisse First Boston investment banker, was charged Thursday with failing to cooperate with investigators and with doling out hot IPOs to favored clients.
The civil complaint from the NASD contends that Quattrone, who this week resigned from CSFB to concentrate on his defense, was responsible for "creating and overseeing a flawed organizational structure that undermined research analyst objectivity."
The allegations against Quattrone are the latest attempt to show that Wall Street firms misled investors during the bull market by producing upbeat stock research to win investment banking deals.
A statement from Quattrone attorney Howard E. Heiss said 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. "
The charges from the NASD, an industry group that regulates Wall Street, cover two areas. First, the NASD cited Quattrone, 47, with failing to testify in its investigation. Investigators wanted to know whether Quattrone recommended the destruction of e-mails concerning companies he helped bring public during the technology boom.
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The second area covers initial public offerings (IPOs) and research. The regulators say a unit controlled by Quattrone, in a practice known as "spinning," gave access to hot IPOs to select corporate executives who could influence their employers' choice of investment bankers.
| Read the two complaints
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The NASD's complaint said the unit under Quattrone's supervision would then sell these clients' shares, "producing substantial profits for the owners of the accounts."
"Because dispensing such profits to tech company insiders was tantamount to giving them cash gifts, the practice violated NASD gifts and gratuities rules," the NASD said.
Quattrone can respond to the complaint and request a hearing. When it comes to discipline, the NASD has the power to fine, censure, suspend or bar someone from the securities industry.
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Credit Suisse First Boston, a unit of Switzerland's Credit Suisse Group (CSR: Research, Estimates), was among 12 financial organizations that agreed to pay a total of more than $1.4 billion to end a probe into allegations of tainted stock research. Regulators say the firms misled investors by publishing overly optimistic research designed to lure investment banking deals.
CSFB paid $150 million in the settlement, whose final language still is being drawn up. That was second only to Salomon Smith Barney's payment of $400 million. CSFB also paid $100 million last year to settle charges related to IPO abuses.
In the failure-to-testify matter, the NASD contends that Quattrone sent an e-mail to employees encouraging them to cleanse their files after the regulators in 2001 told him the NASD was investigating CSFB's IPO allocation practices.
Quattrone's lawyer countered that this charge "is based solely on the NASD's refusal to make a reasonable accommodation after taking two full days of Mr. Quattrone's testimony."
The NASD describes a CSFB unit that brought in $3.68 billion in revenue in 2000 where Quattrone had authority over banking, research and underwriting.
He "created a structure under which not just investment bankers but also research analysts and sales personnel all reported to him, and all devoted their efforts to securing for him an ever greater share of Silicon Valley's investment banking business," the complaint alleges.
But the statement from Quattrone's lawyer said the structure was designed and approved by CSFB's top management and legal counsel, and conformed to all laws and regulations.
Allegations that banks used hot IPOs to satisfy investment banking clients have surfaced as the bear market has deepened.
For most investors, those IPOs turned out badly. Credit Suisse, for example, underwrote offerings from VA Linux and Razorfish. The two technology company initially soared but later tumbled.
The NASD also said that Quattrone's unit issued overly upbeat research reports by analysts who worked closely with investment bankers. Wall Street, as part of its settlement with regulators, has agreed to separate banking and research.
The regulators say that Quattrone was paid more than $200 million between August 1998 and the end of 2001.
Quattrone joined CSFB in July, 1998 and resigned March 4.
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