Time to Stop Blaming People for the Dot-Com Bust
The Wall Street hype surrounding the technology community of the late 1990s was not caused by any one individual. Millions of people were involved -- from investors on their home computers in their spare bedrooms to the richest venture capitalists in Silicon Valley to the investment bankers taking companies public on Wall Street.
03/30/06 7:00 AM PT
Former Credit Suisse First Boston (CSFB) banker Frank Quattrone -- who became a poster boy for all of the excesses of the dot-com era on Wall Street -- recently had his conviction for obstruction of justice overturned by a U.S. Appeals Court in New York City.
Now, speculation is growing that Quattrone, famed for allegedly inflating the prices of certain Internet stocks during the late 1990s, may be hauled into court once again by the United States.
I think it is time for the prosecution to end.
The Next Rudy Guiliani?
Why is it that every time an economic era draws to a close, the government and the media start scapegoating someone who made it big during that era -- characterizing that unlucky individual's behavior as the sole reason for the problems of the time? That is what happened during the late 1980s when the government started going after Wall Street financiers who lead the refinancing of cable and telephone companies, which were pretty uncompetitive in those days.
The prosecution of Michael Milken and other tech investors back then made Rudy Guiliani famous and eventually propelled him into Gracie Mansion in New York. In coming years, the Milken saga may figure importantly in the ex-mayor of New York's list of credits, should he seek the Republican nomination for president of the U.S.
No one has emerged as the legal superstar from the Frank Quattrone case as yet. However, if he wins the governor's race this fall, New York Attorney General Eliot Spitzer -- who has also made a lot of cases based on e-mails from investment banks -- may soon do so.
Is this really the way we want to run things in this country? To continue to put lawyers on the trail of investors and then reward them with high government office for taking them down?
This whole business sickens me. It seems to me that the Wall Street hype surrounding the technology community of the late 1990s was not caused by any one individual. Millions of people were involved -- from investors on their home computers in their spare bedrooms to the richest venture capitalists in Silicon Valley to the investment bankers taking companies public on Wall Street.
If there is a problem, it is a structural problem with capitalism rather than an aberration that the whole country should seek -- through lawyers -- to blame on one or two people.
Quattrone, who made US$120 million in 2000 as CSFB's top technology banker, was convicted of interfering with probes into how the bank allocated shares in initial public stock offerings. The conviction ended the career of a banker who took dozens of companies public -- including Amazon.com back in 1997.
The government's case was based on a December 2000 e-mail written by a colleague urging CSFB employees to "clean up" their files and discard documents. Quattrone forwarded the message after learning that a grand jury was investigating how CSFB distributed shares in initial public offerings.
Quattrone endorsed the e-mail before passing it on, noting that he'd served as a witness in a securities fraud lawsuit. He said the experience led him to "strongly advise" CSFB employees to follow the bank's document retention policy, which called for routine purging of some records.
The trial "was rife with error," Quattrone's attorney Mark Pomerantz told the appeals court.
I'm not saying that Quattrone has set the best example for corporate ethics in the world. However, American executives should not be running for their paper shredders in the wake of his overturned conviction. "The appeals court overturned the Quattrone conviction because of an error in the instructions to the jury, and therefore it does not change the obligation to preserve evidence during a government investigation," Jennifer D. Odom, a partner in the Atlanta-based Securities & Corporate Litigation Group with Powell Goldstein, told TechNewsWorld.
End the Scapegoating
Companies must suspend document destruction procedures during government investigations or face severe consequences, she says. That's the behavior that got Quattrone into legal trouble.
"Recently, the government has imposed stiff monetary penalties on corporations for their failure to preserve and produce documents, or for an undue delay in producing requested documents," she explained.
For example, the Securities and Exchange Commission fined a bank $10 million for its delay in producing documents and for not being forthcoming about documents requested; it fined five broker-dealers $1.65 million each and another firm $2.1 million for failing to preserve e-mails for the period required by law; and it fined an individual $10,000 for delegating to an inexperienced employee the task of suspending a document destruction policy.
Destroying evidence may also impact civil litigation that a company might be facing, Odom pointed out.
The U.S. 2nd Circuit Court of Appeals in New York last week threw out Quattrone's conviction and ordered a new trial "because the jury instructions were erroneous," the justices said. The trial judge had sentenced Quattrone to 18 months in prison. Quattrone was convicted in May 2004 after his first trial ended in a hung jury in October 2003.
It is possible that the government may just walk away from the case altogether, suggests Jacob Frenkel, a former federal prosecutor.
I say it should -- it's already lost, twice. From my perspective, it's time to end the scapegoating over the dot-com era and move on.
Gene Koprowski is a Lilly Endowment Award-winning journalist, TechNewsWorld contributor and nationally syndicated columnist.