The heat is still on CSFB, despite yesterday’s surprise beheading of CEO Allen Wheat and his replacement by former Morgan Stanley superstar John J. Mack.
Bi-coastal investigations by regulators into alleged illegal IPO allocation practices of Wall Street firms will not end as a result of the change in top management at CSFB, securities experts said.
But the move can only help CSFB avoid what would be its worst nightmare – an indictment.
“It is critical for any investment bank to avoid an indictment,” said John Coffee, a law professor at Columbia University and an expert in corporate securities and white collar crime.
Meanwhile, the probes continue.
“I’ve never known the SEC to halt an investigation because of a change in management,” one former Securities and Exchange Commission enforcement veteran said.
While sources at the SEC, National Association of Securities Dealers and U.S. Attorney’s office declined comment on their investigations, they admitted that the new man at the top at CSFB is in no way going to put the snoopers off the trail.
“It means absolutely nothing,” one investigator said about the changing of the guard at the big Swiss investment bank – which has taken the brunt of the bruising since the investigations began.
Wheat was not aware of the talks with Mack, and was flown to company headquarters in Zurich within 48 hourse of the announcement and told he was fired.
The dismissal is a smooth move by CSFB, legal eagles said.
“If CSFB were trying to put in place a strategy to minimize the chances of an indictment, a major housecleaning and transition in corporate leadership would fit the bill,” Coffee said.
This is the strategy that Salomon Brothers, embroiled in a Treasury bond trading scandal, took in 1992, Coffee recalled. The trader, several members of the supervisory group and eventually legendary chairman and CEO John Gutfreund were dismissed.
But, Coffee warns, jettisoning Wheat alone will not satisfy the U.S. Attorney General’s Office.
“He [Wheat] may have run a loose ship, but it would only be one step in a transition. The next would be the resignation of Quattrone,” Coffee said.
Sources said the grand jury impaneled by Mary Jo White’s U.S. Attorney’s office in Manhattan is ongoing. It is still in the information-gathering stage, sources said, and could continue for some time.
However, should more housecleaning as part of a plea bargain occur at CSFB, a source added, look for a quicker resolution.
“Nobody wins in an indictment, and markets can be severely threatened by shutting down major investment banks,” Coffee noted.
But that won’t stop regulators hungry for blood as stock markets tumble in the wake of the tech wreck.
Last month, CSFB fired two managing directors and a broker for breaking the firm’s private client group internal rules about IPO allocations.
And at least six others at CSFB have received notice from the NASD that they are under investigation.
But the polarizing figure around which all the allegations are swirling is Quattrone, head of CSFB’s technology banking group.
This year the firm has been gradually isolating Quattrone by whittling down his authority over what had been a formidable empire responsible for billions of dollars worth of IPOs during the tech bubble last year.
It was former CEO Wheat who hired Quattrone and allowed him to create a kingdom where Quattrone had free rein to run everything from banking to research to the distribution of stocks by the private client group, insiders recalled.
And so he did – making untold billions for the firm – but also sparking investigations and lawsuits.
What investigators and more than a dozen lawsuits against the firm allege is that CSFB and several other bulge-bracket investment banks offered high-demand IPO shares based upon investors’ payment of exorbitant commissions or an agreement to buy additional shares in the aftermarket
CSFB CEO Allen Wheat’s Biggest Bloopers:
Real-Estate investment banking star Andy Stone leaves firm after his highly profitable unit suffers huge losses.
CSFB loses $1.3 billion in Russian securities after currency devaluation in 1998.
In 1999 Japanese regulators discipline CSFB for helping customers hide losses with derivatives. Also in 1999, Sweden’s stock exchange fined CSFB for attempted manipulation.
India banned CSFB from trading in April after charges it manipulated markets.
THE IPO PROBE: A CHRONOLOGY
1998: CSFB CEO Allen Wheat reels in Frank Quattrone and key colleagues in technology banking from Deutsche Bank to CSFB.
June 2000: CSFB gives Quattrone a new rolling three-year contract that allows the group to share in CSFB’s profits and gives Quattrone the freedom to hire and fire at will.
Dec. 2000: Federal authorities begin examining whether securities firms asked big investors to pay large trading commissions in exchange for hot IPOs. CSFB is an early focus of the probe.
Three brokers in Quattrone’s technology group, are placed on administrative leave.
The SEC seeks records from securities firms on alleged tie-in purchases of stocks after their IPOs.
Early 2001: Investigation of CSFB by U.S. Attorney Mary Jo White in New York’s Southern District believed to have begun and grand jury impaneled.
May 2001: The NASD, led by Frank Zarb, tells CSFB it plans to recommend charging the firm and some employees with violating NASD rules related to commissions paid by investors who recieved IPO allocations. Some of the employees targeted were: John Coen, Andrew Benjamin, George Coleman, Thomas Fusco.
May 2001: CSFB reassigns 8 private bankers in San Francisco, severing their ties to Quattrone.
June 2001: CSFB fires three top brokers from Quattrone’s group. Those fired were: Managing Directors John Schmidt and Michael Grunwald and Vice President Scott Bushley.
July 2001: CSFB ousts CEO Allen Wheat and replaces him with John Mack.