In 2000, Credit Suisse First Boston Corporation (“CSFB”) employed Frank Quattrone as head of its Global Technology Group (the “Tech Group”). In that capacity, Quattrone managed approximately 400 technology investment bankers from the firm’s Palo Alto, California office. The Tech Group was responsible for CSFB’s investment-banking activity related to technology companies, including underwriting services. The Tech Group provided services to two types of customers – tech company issuer-clients undertaking offerings of equity-based securities and individual customers who traded securities as clients of the Tech Group’s Personal Client Services subgroup.
In the Fall of 2000, the SEC, NASD and a grand jury empanelled in the Southern District of New York were conducting parallel investigations of Initial Public Offering allocation practices alleged to have been employed by Wall Street investment-banking firms, including CSFB.
Quattrone was indicted for obstruction of justice and witness tampering in connection with the investigations. The indictment alleged three counts against Quattrone: Count 1 charged violations of 18 U.S.C. �߬� 1503 & 2 for “corruptly endeavoring to obstruct a grand jury proceeding”; Count 2 charged violations of 18 U.S.C. �߬� 1505 & 2 for “corruptly endeavoring to obstruct the SEC investigation”; and Count 3 charged witness tampering in violation of 18 U.S.C. �߬� 1512 & 2 for “knowingly and corruptly persuading or endeavoring to persuade others to withhold or destroy documents with intent to interfere with the proceedings.” The jury was unable to reach a verdict in Quattrone’s first trial. The second trial resulted in a guilty verdict on all counts. The United States District Court for the Southern District of New York imposed a sentence of 18 months’ imprisonment.
On appeal, Quattrone challenged the sufficiency of the evidence of his intent, jury instructions on the elements of the crimes charged, certain evidentiary and trial-management decisions, and the sentence imposed. The Second Circuit determined that the jury instructions were erroneous, vacated the judgment and remanded for a retrial.
Before addressing the jury instructions, however, the appellate court evaluated the evidence presented at trial regarding Quattrone’s mental state, and determined that it was sufficient to support the convictions. Among the evidence mentioned are emails circulated between Quattrone and others within CSFB relating to CSFB’s document retention policies.
On December 4, 2000, a banker in the Tech Group, Richard Char, circulated a draft email (the “Char Email”) to Quattrone, a Tech Group lawyer, and two others, which stated:
With the recent tumble in stock prices, and many deals now trading below issue price, I understand the securities litigation bar is mounting an all out assault on broken tech IPOs.
In the spirit of the end of the year (and the slow down in corporate finance work) you may want to send around a memo to all corporate finance bankers (and their assistants) reminding them of the CSFB document retention policy and suggesting that before they leave for the holidays, they should catch up on file cleanup.
Today, it’s administrative housekeeping. In January, it could be improper destruction of evidence.
Upon receiving the Char Email, Quattrone immediately responded, scolding Char that he “shouldn’t make jokes like that on email!” Another CSFB employee who was unaware of the pending grand jury investigation told Char to send the email. On December 4, 2000, Char sent an email to all Tech Group bankers with the subject line “Time to clean up those files.” The Court’s opinion sets out the text of the email as follows:
With the recent tumble in stock prices, and many deals now trading below issue price, the securities litigation bar is expected to [sic] an all out assault on broken tech IPOs.
In the spirit of the end of the year (and the slow down in corporate finance work), we want to remind you of the CSFB document retention policy . . . . The relevant text is:
“For any securities offering, the Designated Member should create a transaction file consisting of (i) all filings made with the SEC in connection with an SEC registered offering or, in an unregistered offering, the final offering memorandum used in a Rule 144A offering or other form of private placement, (ii) the original executed underwriting or placement agent agreements, (iii) the original executed comfort letters from accountants, (iv) the original executed opinions of counsel and (v) a completed document checklist . . . . In order to avoid confusion and ensure greater compliance with these policies, no file categories other than those set forth in Exhibit B may be created in connection with any CSFB managed securities offering without the approval of your time leader and a lawyer in the IBD Legal and Compliance Department or the CDG Manager.”
So what does this mean? Generally speaking, if it Is not (i) – (v), it should not be left in the file following completion of the transaction. That means no notes, no drafts, no valuation analysis, no copies of the roadshow, no markups, no selling memos, . . . no internal memos.
Note that if a lawsuit is instituted, our normal document retention policy is suspended and any cleaning of files is prohibited under the CSFB guidelines (since it constitutes the destruction of evidence). We strongly suggest that before you leave for the holidays, you should catch up on file cleanup.
On December 5, 2000, and after being told he should retain a lawyer because it was likely he would be called before the grand jury or the SEC as a witness, Quattrone transmitted a reply to Char’s Email which he sent to the Tech Group (the “Endorsement Email”). Quattrone’s Endorsement Email stated:
having been a key witness in a securities litigation case in south texas (miniscribe) i strongly advise you to follow these procedures.
Below the text of the Endorsement Email was the day-old Char Email. As a result of the Endorsement Email, at least some Tech Group bankers began or continued “cleaning” their files.
CSFB’s Legal Compliance Department (“LCD”) took steps to countermand the Char and Endorsement Emails on December 6, 2000. LCD sent out an email informing Tech Group bankers not to destroy documents: “Yesterday Frank [Quattrone] and Richard [Char] reminded everyone to edit their files to comply with our Document Retention Policy. However, due to a routine regulatory inquiry, we must stop the editing process for public offerings until further notice.”
On appeal, the government argued that the evidence amply demonstrated that Quattrone, as head of the Tech Group and someone often involved in IPO allocation decisions, was aware that the SEC and grand jury investigations called for documents held by Tech Group bankers. Further, the government argued that the circumstances surrounding the Endorsement Email, coupled with the threat Quattrone perceived from the investigations and a subsequent false statement, made reasonable the inference that Quattrone acted with the necessary “corrupt” intent when he sent the Endorsement Email. The Second Circuit agreed, stating: “Because we think a rational trier of fact could credit the inferences the government urges, the evidence is sufficient to support Quattrone’s conviction on each count.”
The full opinion is available on the court’s website.