The Telegraph
Since 1st March, 1999
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CSFB accused of fraud

New York, Oct. 22: Taking a page from Eliot Spitzer’s playbook, Massachusetts regulators filed a fraud complaint on Monday against Credit Suisse First Boston, contending that the firm’s investment advice had been tainted by its hunger for fees from corporate clients.

In an administrative complaint filed on Monday in Boston, state regulators accused First Boston executives of using the firm’s ratings on stocks to reward companies for hiring the firm to underwrite their stocks and bonds.

Regulators contended that bank executives also used shares of sought-after new stocks as a way to entice corporate clients and invested the firm’s money in private companies to inflate their values if they went public.

The state is asking for $ 2 million in fines against First Boston and a complete separation of its analysts from its bankers, though not a spinoff of the research department.

The secretary of the commonwealth, William F. Galvin, who is seeking election to a third term, said in an interview that the firm’s executives had mocked investors and regulators.

Even after Wall Street officials started setting new rules to limit the influence of bankers over analysts, Galvin said that First Boston executives showed a “cavalier attitude” about the changes.

Frank Quattrone, who runs First Boston’s technology banking group and oversaw technology analysts, was not named as a defendant but his name appeared several times in the complaint. Galvin said Quattrone would probably be called to testify in an administrative hearing and could eventually face charges.

“He participated in the tainting of research and analysis advice,” Galvin said of Quattrone. The performances of analysts that he reviewed,” Galvin said, “were largely based on how faithful they were in selling the investment banking products.”

Late Monday, First Boston, the investment banking arm of the Credit Suisse Group, said in a statement that Galvin’s contentions were “riddled with misleading statements and inaccuracies.”

It defended Quattrone, who was the firm’s most valuable employee during the technology-stock boom, and denied that shares of new stock offerings had been used to attract banking business.

The complaint against First Boston was similar to one filed by Spitzer, the attorney general of New York, against Merrill Lynch in April. After Spitzer released dozens of embarrassing e-mail messages written by Merrill analysts and bankers, the investment firm agreed to pay $ 100 million in penalties to New York and other states.

Galvin has been accused of seeking political gain from taking on Wall Street, as Spitzer has been. But he said the timing of his complaint was unrelated to his re-election effort.

By filing the complaint, Galvin also broke ranks with other state and national securities regulators, including Spitzer, who have been trying to cobble together a settlement that would cover all big Wall Street firms. The aim of those discussions is to punish and restructure the firms through one broad agreement.

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