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The Vindication of Frank Quattrone

The Vindication of Frank Quattrone

9 Mins
September 1, 2006

Frank Quattrone has just become the greatest businessman in three generations to escape the anti-business persecutions of twentieth-century liberalism. On August 22, government lawyers offered investment banker Quattrone a laughable “deferred prosecution agreement” that will result in their dropping all charges against him after a year, in return for his agreeing to such onerous conditions as not associating with known felons for the next twelve months.

Said Roger McNamee, whose Elevation Partners recently bought a major stake in Forbes Media: “Thank goodness the witch hunt is over. The government has finally closed an investigation and prosecution that should never have happened” (Justin Hibbard, “Quattrone’s Questionable Comeback,” BusinessWeek online, August 23, 2006).Not since the New Deal days of 1935, when utility pioneer Samuel Insull won a directed acquittal in the last of his several trials, has a producer of Quattrone’s stature so thoroughly beaten the Left’s attempt to criminalize those they envy. If, as expected, Quattrone resumes his business career and starts garnering again the hundreds of millions of dollars he formerly reaped in annual compensation, he will do much for the country that has hounded him during the past six years.

Yet he might do still more for his country, and much more for those who merit the benefits of his talents, if he simultaneously directed some of his charitable efforts toward ensuring that others are spared the nightmare he has endured.


The first thing that strikes one about the case against Frank Quattrone is how utterly petty it was, and therefore how purely an expression of the envy behind it. The charge against Quattrone? That he wrote a twenty-two word e-mail endorsing a policy set forth by his employer, Credit Suisse First Boston (CSFB).

Say what you will about the motives that drove the Standard Oil antitrust case or the prosecution of Samuel Insull, those were big cases. If one believed that striving for monopoly was criminal, then Rockefeller’s was the company to go after. If one believed that corporate bankruptcies following the Crash resulted from malfeasance, then Insull was an obvious target.

Quattrone could not be guilty of obstruction of justice if he did not know he was obstructing justice.

But even if one believed that malefactors caused people to lose fortunes during the Internet bubble, what sense did it make to prosecute Frank Quattrone? It made sense only as an attempt to ruin the first and greatest of the high-tech investment bankers. As Roger McNamee told San Francisco magazine last May, “Frank is one of the true legends of Silicon Valley. If you were to create a hall of fame, and you were going to limit the number of people in it to 10, Frank would be on that list and he would be the only investment banker on that list.” Quattrone earned a fortune during the 1990s arranging public launches for high-tech companies like Amazon.com and Cisco. When the Internet bubble burst in 2000, and many people lost their shirts, the losers refused to draw the appropriate lesson: that a fool and his money are soon parted. Instead, they howled for the destruction of the man who succeeded, and egalitarian demagogues soon responded.

The initial impetus for the case against Quattrone was a ruckus raised by the Wall Street Journal’s anti-capitalist news department concerning certain practices common in the Internet era—practices that, to me, seem perfectly moral and certainly not criminal. In the practice most relevant to the Quattrone case, an investment bank hands out stock in a hot initial public offering (IPO) to corporate executives who might later do business with the bank. This is called “spinning,” and it seems a reasonable enough practice; indeed, it represents the kind of tit-for-tat benevolence that anthropologists tell us is the very cornerstone of human trust and trade. If for some reason a company does not want its employees accepting gifts from potential business partners, it can make a policy against doing so. But the practice itself involves no fraud.

That is to say, it involves no fraud in the ordinary criminal sense. But the laws and regulations that govern “white-collar crime” are incredibly broad and vague. For example, New York State Attorney General Eliot Spitzer waged his crusade against business using an “anti-fraud” law under which a person can be found guilty of fraud even though (1) no one is defrauded, (2) no transaction of any kind takes place, and (3) the guilty person never intended to defraud anyone.

Given that CSFB operated in such a twilight world, no one at the company knew what to expect when, in May 2000, the National Association of Securities Dealers (NASD) began an investigation into the bank’s allocation of IPO shares. Under a dubious legal theory, the beginning of an official investigation means that the targeted company may not destroy potentially relevant documents. But exactly when does an investigation begin and exactly what might be relevant to it?

On December 3, a CSFB lawyer told Quattrone that a grand jury was looking into IPO allocations, but that “they are not formally accusing us or individuals yet.” The lawyer also told Quattrone not to say anything to anyone. Because IPO allocation was not Quattrone’s department, because no accusations had been made, and because the company lawyer was keeping the whole thing secret, Quattrone naturally concluded that his department should proceed according to form unless he heard otherwise. The next day, he and others received a colleague’s e-mail recommending that people streamline their files as the year ended, in keeping with CSFB’s standard document-retention policy. Quattrone seconded the recommendation and forwarded it.

As a consequence of that brief, innocuous e-mail, Frank Quattrone eventually would be sentenced to eighteen months in prison and barred forever from the industry that had been his lifelong career.


Quattrone forwarded his fateful e-mail on December 5, 2000. In October 2002, investigators from the NASD questioned him about it. But nothing further happened, for several months. Then, in January 2003, the e-mail was leaked to the WSJ’s muckraking reporters, and ambitious prosecutors quickly understood that going after Frank Quattrone could be a popular exercise of power. In a matter of days, the word was out that Quattrone was facing charges of obstructing justice. On April 23, he was indicted.

For the past hundred years American producers have been subjected to politically motivated persecution.

During his first trial, in October 2003, Quattrone argued that his unit had not been the one that approved IPO allocations and therefore he did not know that the investigation into spinning concerned his department. The result was a hung jury. As the chief holdout juror said simply, “The evidence wasn’t strong enough” (New York Times, October 27, 2003). Alas, the members of Quattrone’s second jury did not possess so much common sense, and they chose instead to substitute envy for evidence. Said one juror in the second trial: “You don’t get to be where he was in that field and not know what’s going on” (Wall Street Journal, May 4, 2004).

Nor did Quattrone fare well with the judge allotted to his two trials. Judge Richard Owen not only was notoriously anti-defendant, he also was the librettist and composer of an opera extolling a Quaker martyr—hardly the ideal jurist to hear a case against one of the wealthiest investment bankers of the dot-com era. At the time of Quattrone’s second trial, federal sentencing guidelines suggested that his conviction merited a prison term of ten to sixteen months, and the federal probation department recommended that he be sentenced to only five months. But in September 2004, Judge Owen sentenced him to eighteen months, adding to the guidelines’ maximum on the basis of his own personal opinion that Quattrone had lied during his first trial—not during the one that convicted him.

Then, in November 2004, the National Association of Securities Dealers piled on, hitting Quattrone with a lifetime ban from the securities industry. The basis for this action was not Quattrone’s conviction, but something even more outrageous. In 2002, Quattrone had testified at an NASD hearing, informing his questioners about the circumstances surrounding his e-mail. When he was indicted the following April, he asked—on his lawyer’s advice—to delay testifying further until the trial was over. Otherwise, he said, his NASD testimony might be used against him in court, violating his Fifth Amendment rights. NASD responded that it was just an industry disciplinary body and was not bound to respect constitutional privileges. The NASD Hearing Panel then gave Quattrone a one-year suspension from the securities industry, contingent upon his testifying within that year. And he did testify, once following his first trial and again following his second trial. But a higher NASD body reversed the Hearing Panel’s penalty and imposed a lifetime ban on Quattrone—all because he had briefly and temporarily invoked his right not to incriminate himself.

Fortunately, the outrageousness of Quattrone’s persecutors soon began to work in his favor. When sentencing Quattrone, Judge Owen had decided to twist the knife still deeper, refusing to let Quattrone remain free on bail during his appeal and ordering him to surrender to authorities within fifty days. An appeals court quickly overturned that particular bit of judicial nastiness. Had it not, Quattrone would have been incarcerated for nearly the full eighteen months of his sentence before all charges eventually were dropped.

Judge Owen’s conduct of the trial also began to work for Quattrone. In a rare move, several associations of lawyers filed briefs in support of his appeal. “This is unusual for us,” said Barry Sheck, president of the National Association of Criminal Defense Lawyers, “but this situation was unusually egregious. This was the equivalent of a judicial mugging” (New York Times, February 10, 2002). Apart from his numerous rulings against Quattrone, Judge Owen had also helped to convict him by instructing the jury that Quattrone did not even have to know he was doing anything wrong. All the prosecution had to prove, he claimed, was that an investigation called for certain documents and that the defendant permitted the destruction of those documents.

Ultimately, that proved too much for the appeals court. In March 2006, the Second Circuit Court of Appeals said that whatever a jury might make of Quattrone’s actions when the law was properly explained to them, his conviction had to be overturned on the basis of the judge’s instructions. Quattrone could not be guilty of obstruction of justice if he did not know he was obstructing justice. Thus, a third trial would be necessary. Better yet, if a trial were held, the prosecutors would have to deal with a new judge, for the appeals court removed Judge Owen from the case. Without actually accusing him of bias, the court noted that “certain [of his] comments could be viewed as rising beyond mere impatience or annoyance.”

Four days later, the SEC overturned the NASD’s action permanently barring Quattrone from the securities industry. Like Judge Owen, the NASD had acted so ferociously against Quattrone that it undermined its own case. Not only had it refused to recognize his right against self-incrimination, it also had refused to allow him a hearing on the issue. Thus, the SEC did not even have to consider the merits of Quattrone’s Fifth Amendment claim; it overturned the lifetime ban simply on the grounds of NASD’s having unfairly refused to hear Quattrone’s arguments. Two months after its ban was struck down, the NASD withdrew all its charges against Quattrone related to IPO spinning.

Quattrone’s final victory came on August 22, when humiliated federal prosecutors reached a fig leaf “agreement” with him, promising to drop all charges in one year.


More than six years have passed since the federal government began its crusade against investment bankers generally and Frank Quattrone in particular. Forty-four when his ordeal began, Quattrone was forced to spend six of his prime years hounded by journalists, regulators, and prosecutors, simply because he was the greatest high-tech investment banker of his age.

Following his liberation on August 22, Quattrone announced, “I plan to resume my business career.” Associates quoted by the New York Times said that he may start a private equity firm focusing on technology companies. That is welcome news in Silicon Valley, and it should be welcome news throughout America.

During his enforced leisure, Frank Quattrone developed two charitable interests. One is the North California Innocence Project, which helps defend indigent people who may have been wrongly convicted. The other is the San Jose Tech Museum of Innovation, where he is vice chairman of the Board of Directors. But in light of what he has suffered, Quattrone might consider taking up a third cause, one that combines the two he has already adopted: defending innocent innovators.

Over the past two centuries, the creativity of the American businessman has brought about unimaginable improvements in this country’s productivity, consumption, education, recreation, and luxury. Yet for the past hundred years—from the days of John D. Rockefeller and J.P. Morgan to the era of Michael Milken and, yes, Frank Quattrone—American producers have been subjected to politically motivated persecution, disguising itself as law enforcement and exposé journalism. In the past five years, we have seen anti-capitalist prosecutors destroy tens of billions of dollars in corporate value, threaten businessmen with prison terms longer than those given to murderers, and claim the right to dictate operating procedures in industries that lie at the heart of American capitalism: brokerage houses, mutual funds, and insurance companies.

Quattrone’s prosecution made sense only as an attempt to ruin the first and greatest of the high-tech investment bankers.

What lies behind this reign of terror? Lee Altschuler, former chief of the U.S. Attorney's Office in San Jose, said of Quattrone: “He was prosecuted not so much for sending that e-mail, but for who he was and what he did. There is a visceral reaction that anyone who made the tens of millions as he did deserves to be taken down a big notch” (Scott Duke Harris, “Quattrone Makes Deal of a Lifetime,” SiliconValley.com, August 23, 2006). Though Quattrone violated no law or regulation, he was extremely lucky to dodge each and every attempt to take him down. Last February, Rich Karlgaard, the publisher of Forbes, was predicting that Quattrone would soon be in prison, and not without reason. So many anti-capitalist laws regulations are on the books, and they are written with such incredible breadth and vagueness, that virtually any businessman who is targeted to “be taken down a big notch” will ultimately fall victim.

What such men need—what America needs—is an “Innocence Project” for businessmen. We need an organization that will mount a sustained counterattack against the persecution of businessmen, much as the Anti-Defamation League mounts a sustained attack against anti-Semitism. Such an organization would defend businessmen not only against illegitimate prosecutions but also against illegitimate laws. It would combat the defamation of American businessmen by journalists and politicians alike. And it would—perhaps its most difficult task—convince businessmen to defend their right to economic liberty. In her 1961 lecture “America’s Persecuted Minority: Big Business,” Ayn Rand called for just such a Business Civil Liberties Union. Half a century later, we need it more than ever.

Only when that happens—and when businessmen may pursue profits without having to endure moral condemnation and legal assault—will the vindication of Frank Quattrone be complete.

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