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September 10, 2004 -- On September 9, Frank Quattrone, a prominent investment banker formerly with Credit Suisse First Boston, was sentenced to 18 months in prison. Did he steal money entrusted to him? No. He earned his fortune and enriched many other individuals in the process by foreseeing the potential of the Silicon Valley companies that have revolutionized our society. It was he who led the initial public offerings for Netscape, Cisco Systems, and Amazon.com. Well, then, did he commit some massive fraud against his customers? No.
Government investigators found him guilty of no such wrongdoing.
The crime Frank Quattrone allegedly committed was obstruction of justice, in short, a cover-up—even though he committed no crime in need of covering up. This injustice not only punishes a visionary who deserves our thanks and admiration, it also opens the floodgates for government assaults on those who have done nothing but arouse the fury of muckrakers and the envy of egalitarians.
The government's case against Quattrone was truly speculative. On December 4, Quattrone’s colleague Richard Char sent an email suggesting that, since the year was ending, it was a good time to carry out the company's customary file clean-up of first drafts, notes, discussion documents, and the like. He also noted that class-action lawyers were talking about suing investment banks whose IPO stocks had fallen and implied that a clean-up would keep them from getting their hands on additional ammunition. But, Char's memo said, once litigation actually begins, the company mandates that all clean-up stop. The next day, Quattrone seconded Char's email, recalling a Texas case in which plaintiff lawyers had twisted innocent documents out of all context.
Supposedly, Quattrone's email amounted to obstruction of justice because, on December 3, he had been told about an investigation into the company's method of allocating IPO shares. But look at what he was actually told about those investigations by CSFB's general counsel, David Brodsky. Brodsky assured Quattrone that the firm had done nothing wrong, that he would educate the investigators and show them there were no irregularities, and that he would persuade them to back off. Quattrone asked if they had already charged the company or individuals with any wrongdoing; the answer was no.
Did Brodsky tell Quattrone to inform his staff of the investigations and halt any file clean-up? On the contrary, Brodsky ordered Quattrone to say nothing about the investigations to anyone; an investigation, even an unfounded one, would damage the company's reputation. When Quattrone asked if formal legal accusations had been made, did Brodsky clarify the situation for him and say: "No, but the investigation alone means that file clean-up must be halted"? CSFB's top lawyer said nothing about halting file clean-up.
In the end, the government's investigation found no indictable crime committed by Quattrone or CSFB. Moreover, regulators were aware of Quattrone's clean-up email as early as October 2002 and did nothing. Then, in January 2003, someone leaked Quattrone's email to the Wall Street Journal and the muckrakers were in full howl. Within days, New York's politically ambitious attorney general was wrangling with the U.S. attorney in Manhattan over who would get the glory of prosecuting Quattrone. On what grounds? That Quattrone should have stopped his subordinates from proceeding with file clean-up—even though Quattrone, like Char, obviously believed that only formal legal action mandated such a halt; even though CSFB's top lawyer had said nothing to clarify the matter for him; and even though Brodsky had ordered Quattrone to say nothing about the investigations to anyone.
Quattrone's case should disturb all free-loving Americans. The open-ended charge of "obstruction of justice" has now been used against both Quattrone and Martha Stewart, and a pattern is developing. Target a wealthy executive, announce a massive investigation into his activities, and if you find no irregularities, well, see if it looks like he may possibly have made the slightest move to protect himself from your inquisition. If so, call it obstruction of justice and slap him in jail for a year or so.
During the French Revolution, it was a crime to be suspected of a crime, and that is the path this country is now on when it comes to wealthy businessmen. What does such fluid law accomplish? In Ayn Rand 's novel Atlas Shrugged , a government operative who is attempting to force a businessman into compliance with a questionable government edict explains the usefulness of such a fluid situation: "There's no way to rule innocent men. The only power any government has is the power to crack down on criminals...One declares so many things to be a crime that it becomes impossible for men to live without breaking laws."
That is the kind of regime that the Quattrone conviction signals—one in which, guilty or innocent, if the government wants to get you, it will. Such a regime enables the envious, whose twisted ethos equates their success as destroyers with their victim's success as creators. Right now, backed by a muckraking press, the technique is being used against wealthy business executives. But Americans should understand that a government powerful enough to quash a Frank Quattrone on such a bogus charge can crush any of us.
Edward Hudgins is research director at the Heartland Institute and former director of advocacy and senior scholar at The Atlas Society.