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Frank Quattrone may have been a darling of Silicon Valley’s technology elite during the Internet boom, but no one is clamoring to be a “Friend of Frank” these days. Silicon Valley securities lawyers fear that even a passing acquaintance with investment banker Quattrone will land them in the negative spotlight. Quattrone, the former head of the technology banking group at Credit Suisse First Boston, was charged last week by the National Association of Securities Dealers for violating a basketful of industry rules. One allegation is that Quattrone directed coveted shares in initial public offerings to as many as 300 so-called “Friends of Frank” in exchange for favorable consideration for investment banking work. A complete list has yet to surface, but so far 63 technology company executives have been publicly linked to Quattrone’s favored list. It’s unclear if there are any Valley lawyers on the list. “It says a lot about the Valley,” said one leading securities lawyer in Palo Alto who spoke on condition of anonymity. “The Valley has always had a very incestuous business climate where conflict issues have been pushed to the furthest extreme.” For the most part, securities lawyers in Silicon Valley didn’t want to talk about Quattrone’s list of friends or his troubles in general, which include possible criminal indictments by the New York attorney general or the U.S. attorney in Manhattan. One Valley lawyer said he feared being contacted by regulators if his name were to show up in an article about Quattrone. “If [Quattrone] is a fall guy,” said Ron Rotunda, a law professor at George Mason University, “he’s not going to fall alone.” Once considered one of Wall Street’s most powerful investment bankers, Quattrone’s name has come to be synonymous with the excesses of the Internet bubble in the late 1990s. So far, investment banks have come under scrutiny for their practices, and two — including CSFB — have paid fines to settle regulatory investigations. But Quattrone is the most visible individual under scrutiny since the technology stock-market bubble burst in 2000. Last week, the NASD filed two separate civil complaints against Quattrone that threaten hefty fines or banishment from the securities industry. The complaint that is considered the most serious alleges Quattrone failed to cooperate with the NASD’s investigation into whether he sent e-mails encouraging members of his group to destroy documents. The biggest question centers on whether he did so in an attempt to cover up his actions. CSFB forced Quattrone to resign last week after he failed to show up to testify before the NASD. The other complaint alleges Quattrone participated in a practice known as “spinning,” which is allocating IPO shares to targeted individuals in exchange for investment banking work. The complaint also accuses Quattrone of creating and running a corporate organization that undermined the objectivity of research analysts. Quattrone has hired Morrison & Foerster partner Howard Heiss to handle his defense against the NASD charges. It’s the second time in recent memory that MoFo’s name has been linked to one of the nation’s most notorious defendants. Last year, top MoFo litigator James Brosnahan took on the U.S. government in defending John Walker Lindh, the American citizen from Marin County who was captured fighting with the Taliban. Heiss, who is based in MoFo’s New York office, would not comment about the case or how he landed such a high-profile client. However, Heiss issued a statement through a public relations firm that asserted Quattrone’s innocence. “The NASD charges are completely without merit and represent an unprecedented attempt to take punitive action against an individual for conduct that was legal at the time and widespread throughout the industry,” Heiss said in the statement. The NASD has the power to fine an individual for wrongdoing and can suspend or revoke a securities dealer’s license. However, it cannot enforce criminal sentences. Robert Friese, a partner at Shartsis, Friese & Ginsburg in San Francisco, said the civil arena is still unsafe territory because regulatory agencies have begun working more closely with criminal prosecutors. “It’s giving rise to the serious questions of whether it was worth the risk to let a client testify” before a regulatory agency because the testimony becomes ammunition for prosecutors, Friese said. Securities law specialists see the NASD complaints as a precursor to criminal charges, and the only question is whether New York Attorney General Eliot Spitzer or Manhattan’s U.S. Attorney James Comey will file charges. John Coffee Jr., a law professor at Columbia Law School, said Quattrone has little to gain by cooperating with the NASD. “The NASD can only throw you out of the industry,” Coffee said. “There’s no downside to getting fired if you’re already unemployable in the industry.” In a criminal setting, meanwhile, the text of Quattrone’s widely publicized e-mail messages with CSFB’s in-house lawyer and to his subordinates may prove difficult to explain away, Coffee said. He suggested one line of defense could be that Quattrone was merely passing on instructions to destroy documents — though it would be an uphill battle for the defense. The issue of destroying documents, made famous by the Enron debacle, is the one taken most seriously in the Valley. One lawyer said that when people he knew read of a list of “Friends of Frank,” their reaction was disbelief about who was on it, not whether there was a list at all. “This is further evidence of how out of kilter people’s values had gotten,” said the longtime Silicon Valley lawyer. This securities lawyer, who has worked with Quattrone, said he’s relieved he was never asked to be a friend of Frank because he’s not certain he would have turned down the opportunity. Regardless of who may be touched by the scandal, the practices of Quattrone and his Valley colleagues will likely be scrutinized for years to come, lawyers say. “We’re all going to be living with the aftermath of the Valley’s excesses for a good long time to come,” said David Anderson, a white-collar crime defense partner at Pillsbury Winthrop. “Whether this case will stand as a benchmark, only time will tell.”

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