Quattrone Makes Deal To Avoid Third Trial
Agreement Is Major Victory for Former Banker
By PAUL DAVIES
August 22, 2006 3:16 p.m.
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NEW YORK -- In the end, Frank Quattrone -- the former star investment banker and a driving force behind the technology-stock boom of the late 1990s -- put together the deal of his life.
Since 2003, Mr. Quattrone has faced obstruction-of-justice and witness-tampering charges stemming from a federal investigation into how his company allocated lucrative initial public offerings of stock. One of the most powerful bankers in Silicon Valley at the time, he has since then faced two trials -- and the possibility of a third.
However, on Tuesday federal prosecutors announced an agreement that not only avoids a third trial and possible prison, but drops all charges against him in 12 months provided he steers clear of trouble in that time. This type of deal, known as "deferred prosecution," will allow him to resume his banking career immediately. (See the text of the agreement.1)
"This is an extraordinary win for Quattrone," said Jerry Bernstein, a former federal prosecutor who is currently an attorney at the law firm Blank Rome LLP, specializing in white-collar crime. "A deferred prosecution is as good as it gets, short of a dismissal."
Mr. Quattrone's agreement is more favorable than most. Deferred-prosecution agreements usually require a monetary fine and an admission of wrongdoing, but neither was required of Mr. Quattrone.
In addition, agreements involving securities cases often prohibit the individual from working in the financial industry for a set period of time, or even for life. But Mr. Quattrone will be allowed to resume his banking career, where he dominated the Silicon Valley technology boom, leading successful IPOs like Amazon.com and Cisco Systems, and earning $120 million in 2000 alone.
The three-page agreement includes six limited conditions, such as associating only with "law-abiding persons" and notifying the government before traveling outside the country.
A beaming Mr. Quattrone, sporting a red tie with insignias of golf clubs, cigars and trophies, said outside of court he was "very pleased the case will be concluded" and that planned to "resume" his business career.
The agreement is a change in course by the U.S. Attorney's office in the Southern District of New York, which twice brought charges against Mr. Quattrone. The first trial ended in October 2003 in a hung jury, with jurors split 8-3 in favor of conviction. He was convicted in a retrial in May 2004 and sentenced to 18 months in prison. But an appeals court overturned the verdict last March, citing errors in jury instructions by the trial judge, Richard Owen, and reassigned the case to a different judge.
Rather than proceed with a third trial, federal prosecutors have effectively dropped the case. A variety of factors likely went into the decision, observers say.
For one thing, U.S. Attorney in Manhattan, Michael Garcia, is the third person to head the office since the initial indictment just three years ago. The two key assistant U.S. attorneys who prosecuted the case have left the office.
As a result, after two high-profile trials, the government may have felt that its time and resources would be better spent prosecuting new cases. In particular, prosecutors are eager to investigate more pressing matters, like the "backdating" of stock options -- a scandal in which corporations allegedly grant their executives stock options but retroactively change the dates they take effect, making them more lucrative.
In a statement, Mr. Garcia said Mr. Quattrone's deferred prosecution "is an appropriate resolution of the case in light of all the facts and circumstances, and the posture of the case at this time."
Mr. Quattrone was charged in April 2003 with obstructing a probe into how his company allocated IPOs. He was also charged with witness tampering, based on his endorsement of a colleague's email in December 2000 urging members of his technology-industry banking group to "clean up" their files. Mr. Quattrone sent his note shortly after he was told that a criminal grand jury had joined an earlier civil probe regarding IPOs. He said he didn't connect the email with the IPO probes and wasn't responsible for IPO allocations.
Despite getting a conviction in the second trial, the case wasn't very strong, according to defense attorneys not involved in the case. "If it was a lay-up, [the government] would've taken it," said George Stamboulidis, a white-collar defense attorney at Baker Hostetler and former federal prosecutor.
Mr. Quattrone drove a hard bargain and had top-notch legal representation. Throughout the legal battle, Mr. Quattrone maintained his innocence and rejected offers to plead to lesser offenses. In April he beefed up his defense team, adding Mark Pomerantz of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Mr. Pomerantz, the former chief of the criminal division in the U.S. Attorney's office in Manhattan, is well respected by his former colleagues.
While many defense attorneys viewed the deal as a setback for the government, others said the prosecutors acted responsibly. "The government hasn't rolled over here," said Thomas Curran, a former assistant district attorney in Manhattan and now a defense lawyer with Ganfer & Shore LLP. "The case was proper and the government achieved significant deterrence when it comes to preserving documents."
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