what a fucking mess, #2
Joseph S Barrera III
Fri, 07 Mar 2003 20:17:50 -0800
I remember trying and failing to get in on Red Hat's IPO.
I could have made $40,000 in two days if I knew the right
people, or even if I had signed up with eTrade in time.
Dan Gillmor on Technology
Quattrone clique disgraced Silicon Valley
By Dan Gillmor
Mercury News Technology Columnist
There's little shock value these days in new stories of shifty dealings
by Wall Street insiders.
So disciplinary charges filed Thursday by the NASD (formerly known as
the National Association of Securities Dealers) only amplified the
notoriety of Frank Quattrone, the Silicon Valley investment banker who
has come to personify the worst excesses of the technology-bubble days.
No one could have been amazed at the latest litany of how supposed
``analysts'' at a Wall Street investment bank were part of a scheme to
pump up stock prices as a quid pro quo for lucrative banking business.
In this case, Quattrone's ``everyone was doing it'' defense rings true.
There was some eye-opening detail in NASD's description of Credit
Suisse's practice of ``spinning'' initial-public-offering shares to
``Friends of Frank'' -- executives of companies with which the firm
wanted to do business. Spinning was a pervasive part of the operation
that generated billions of dollars in fees.
But there's a deep sense of sadness today in seeing how many Silicon
Valley ``friends'' Quattrone accumulated in his zeal to dominate
technology investment banking. Thanks to my colleague Deborah Lohse, who
obtained a list of some of these good buddies, we now can put many more
names and faces on the valley's expanding hall of shame.
Keep in mind how this all worked. In the vast majority of cases,
according to NASD and some of the recipients, the Friends of Frank
didn't do the trading. They had ``discretionary'' brokerage accounts.
They gave Credit Suisse brokers control over when to sell the insider
shares they had received.
Like the analysts who praised junk companies, these brokers were better
informed than the average member of the public. The brokers sold the
insiders' shares regularly and usually for significant profits.
The Friends' risk was next to zero. They were being given what insiders
called ``free money'' in the late 1990s. The free money came in big, big
bags. And their companies did business with CSFB -- big business.
``Scandal'' is too small a word for this behavior.
Remember who lost in this spinning. First were the little investors who
bought over-hyped stocks that have since crashed. Second were the
companies selling stock; the huge gains their shares tended to make at
the peak of the bubble meant that the investment bankers were pricing
the offerings much too low. That meant less money in the coffers of
small companies, some promising, that would eventually need every dime.
The other losers were the Friends' own companies -- or, to be more
precise, their investors. If someone was going to make a payoff for
investment-banking business, the money should have gone to the
shareholders, who were truly picking up the bill for the banking fees.
Choosing an investment bank to handle a transaction -- IPO, secondary
offering, merger, whatever -- is serious stuff. Some of the Friends
would undoubtedly have picked CSFB to handle their companies' deals even
in an arms-length environment.
Quattrone, who steadfastly denies any wrongdoing, is enormously
talented, with great knowledge and unparalleled connections. He had a
hard-working, brainy team. But the shareholders of these companies will
never know if they might have gotten a better deal from a different bank.
The Friends of Frank disgraced Silicon Valley. And along with the other
insiders who profited so handsomely at such cost to so many others,
they've just about wrecked American capitalism.