- The Washington Times - Wednesday, May 14, 2003


A congressional probe of one of the most staggering accounting scandals has taken a new twist: Investigators last week demanded records from HealthSouth’s Investment bank, UBS Warburg.

That and other investigations are putting spotlights on the world of the big investment banks, which operate mostly away from public view as they raise capital for business.

“The role of investment banks … has changed and grown in importance,” said Sen. Carl Levin, Michigan Democrat. He led an investigation last year of the business ties between some big Wall Street firms and the now-bankrupt Enron.

“Several investment banks have a lot to answer for in the Enron scandal,” Mr. Levin said Tuesday. “It is time for regulators to reassess the role of investment banks and what needs to be done to oversee their conduct and restore investor confidence in U.S. markets.”

As they helped drum up financial backing for the multibillion-dollar mergers and other deals of recent years, investment bankers reveled in their image as smart, swaggering risk-takers.

Now, however, the industry has a new poster boy: Frank Quattrone, a former investment banker indicted Monday in New York on charges of witness tampering and obstructing federal investigations. Mr. Quattrone is accused of urging underlings to destroy documents at his firm, Credit Suisse First Boston, just as a probe was getting under way.

During the high-tech boom of the late 1990s, Mr. Quattrone earned almost $100 million a year and wielded enormous influence at the helm of CSFB’s technology division.

He presided over lucrative stock offerings of companies such as Amazon.com and Netscape Communications.

The charges against Mr. Quattrone carry penalties of up to 25 years in prison.

His attorney contends he is not guilty.

UBS Warburg, CSFB, Merrill, J.P. Morgan and Citigroup’s Salomon Smith Barney unit are among 10 Wall Street firms paying $1.4 billion in a settlement with regulators over analysts who have misled the public by touting certain stocks to win investment-banking business.

Under the industrywide pact, which followed an investigation by the SEC and state and market regulators, two former star analysts were fined a combined $19 million and banned from the securities industry. They are Internet specialist Henry Blodget of Merrill Lynch and telecommunications specialist Jack Grubman of Salomon Smith Barney.

Individual investment bankers could be next on the enforcement block. While they refuse to discuss it publicly, the regulators are believed to be looking at the conduct of investment bankers who are accused of pressuring their analyst colleagues to maintain rosy stock ratings.

The next level in the chain of command: the firms’ top executives. Regulators have held open the possibility of enforcement action against them for improper supervision of analysts and investment bankers.

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