Monday, August 18, 2008
TECH BOOM'S BANKER
On a cloudless day in May, schoolchildren jam the Tech Museum of Innovation, a tangerine-colored structure in San Jose, Calif., that showcases the computer revolution. Fifth-grade girls test their technology savvy on a flat-panel display.
"Who invented the World Wide Web?" it asks, listing five names.
"Bill Gates!" the three shout in unison.
The correct answer is British computer scientist Tim Berners-Lee. Yet if the quiz were to ask who turned the Web into a byword for unprecedented wealth and, ultimately, scandal, then the answer would have to be the Tech Museum's biggest booster and chairman: Frank Quattrone.
No other investment banker did more to enrich Silicon Valley with hot initial public offerings (IPO) in the 1990s. And no one came to symbolize dot-com excesses more than Mr. Quattrone.
"He became the poster boy for the bubble," says Richard Kramlich, co-founder of venture capital firm New Enterprise Associates.
A South Philadelphia native armed with a master of business administration from Stanford University, Mr. Quattrone ran Credit Suisse First Boston Corp.'s (CSFB) technology banking group from 1998 to 2003. That year, he faced a double-barreled legal salvo. In March, the National Association of Securities Dealers (NASD) filed a complaint accusing him of giving out IPO shares to favored executives to win investment banking business. Then in April, federal prosecutors in New York charged Mr. Quattrone with obstruction of justice and two related charges after he wrote an e-mail strongly advising CSFB bankers to destroy underwriting records.
Mr. Quattrone testified that he was not guilty and had sent the e-mail in accordance with CSFB's document management policy. The jury didn't buy it. Mr. Quattrone was convicted in 2004, sentenced to 18 months in prison and barred from working in the financial markets for life. Then, in a rare turnaround two years later, a federal appeals court threw out the conviction. The court found that the trial judge had erred in his instructions by failing to tell the jury that to convict Mr. Quattrone, it must find that he intended to destroy documents relevant to a pending grand jury investigation. The NASD dropped its case the same year.
For Mr. Quattrone, who at his team's peak in 2000 handled financings and merger and acquisition assignments valued at $341 billion, a single e-mail tarnished a career - and a reputation - that took decades to build. Now, Mr. Quattrone, 52, is out to reclaim his professional life. On March 18, he unveiled his new firm, San Francisco-based Qatalyst Group, which plans to advise companies on acquisitions and raising capital, underwrite equity offerings and invest in deals alongside venture capitalists and buyout firms.
"This is about Frank's vindication," says a former CSFB banker who has spoken with him about Qatalyst's prospects. "He fell about as far as you can, and he wants to prove to the world that he's not only innocent but that he's back."
Mr. Quattrone's comeback has set venture capitalists and entrepreneurs buzzing about whether he can restore his name and reclaim the clients who once flooded his Palo Alto office.
"He beat the legal rap. But on Wall Street, all you really have is your reputation, and he took a hit to his," says Andy Kessler, an analyst who worked with Mr. Quattrone at Morgan Stanley in the 1980s and went on to run hedge fund firm Velocity Capital Management LLC. "He's going to have to dig himself out of that, and maybe he will, and maybe he won't."
Three weeks after Qatalyst opened, Mr. Quattrone bagged a high-profile job: Google Inc. Chief Executive Officer Eric Schmidt, an old friend, sought his advice on how Microsoft Corp.'s hostile $47.5 billion bid for Yahoo! Inc. would affect Google.
Entrepreneurs have been calling, too.
"I'm happy he's back," says Zach Rinat, the founder of software maker Model N Inc. who sought Mr. Quattrone's advice when he sold his last firm, NetDynamics Inc., in 1998. "He has a passion for the game."
Mr. Quattrone declined to be interviewed for this article.
"As you might imagine right now, things are a bit hectic with all the things a startup has to get done," he wrote in a March 18 e-mail.
The question Mr. Quattrone faces now is whether he's still tainted by his past, says Phillip Phan, a finance professor at Johns Hopkins University who specializes in corporate governance. Mr. Phan says companies and institutional investors may balk at associations with Mr. Quattrone even if he did beat the government.
"Silicon Valley is full of failure-to-success stories," Mr. Phan says. "But Quattrone's failure is a moral one, and the reputation effect can't be underestimated."
Techland is famous for its obsession with the idea that a person can fail and start anew. After weathering a four-year legal crucible, Mr. Quattrone has won that rare second chance. Summoning the self-discipline to excel at school and leave South Philadelphia behind, he grew rich as he became the most powerful banker of the technology revolution.
Now, the one-time star is trying to reclaim his perch without the practices that helped drive his success. Even after all of this time, Mr. Quattrone's biggest challenge may still be living down the repercussions of a single e-mail message he sent almost eight years ago.