'Frank's Friends' Feel the Heat
By Chris Nolan
April 26, 2001
For the Silicon Valley movers and shakers who can call themselves "Friends of Frank," the names of Credit Suisse First Boston bankers John Schmidt and Mike Grunwald have a familiar ring.
Those names, recently in the news, are listed as brokers on what are informally known as "Friend of Frank" accounts opened for executives, friends and business acquaintances of Frank Quattrone, head of Credit Suisse First Boston Technology Group in Palo Alto, California.
Schmidt, managing director of CSFB's Technology Client Services office in San Francisco, and Grunwald, who reported to Schmidt, have been placed on administrative leave by the bank. Schmidt reported to Quattrone and to CSFB executives in New York.
CSFB is being investigated by the U.S. Attorney's office in Manhattan as well as the Securities and Exchange Commission, and there have been reports that the two men's paid administrative leaves are related to the probes. The two agencies are said to be looking at the possibility that CSFB traders demanded higher-than-usual commissions from hedge funds and others hoping to get allocations of initial public offerings.
CSFB underwrote some of the hottest stock offerings during the Internet tech boom including VA Linux, Razorfish, Handspring and MP3.com.
The "Friend of Frank" accounts trade almost exclusively in first-day initial public offerings -- many of them stock offerings being underwritten by CSFB -- according to those who have the accounts. CSFB says the accounts are not out of the ordinary but are part of normal business practice, a service the bank offers its wealthy clients.
As with IPO allocations, the accounts aren't open to everyone. They were offered only to a small group of high-tech executives, venture capitalists and others who have done business -- or might do business -- with Quattrone and his technology banking group.
The accounts could be a way for CSFB's technology group to encourage high tech executives and others in Silicon Valley to do business with the bank's technology group. The NASD is also investigating various banks' IPO policies, but an association spokeswoman declined to comment on any activity.
One friend of Frank's, a former investment banker who found Schmidt and Grunwald's name on his brokerage statement, said he opened his account after a conversation with Quattrone. He said he doesn't know Schmidt or Grunwald, even though his paperwork says the two are his brokers.
"The guy who called me was that guy Mike -- Mike Grunwald," said a former Silicon Valley executive who was approached about opening a trading account with CSFB.
He says Grunwald and he traded phone calls but he never opened the account. "I just never got around to it," said the executive who has since left Silicon Valley.
"They get IPOs. They allocate shares to everybody and they flip 'em," the former Silicon Valley exec said, describing his understanding of how the account would work.
And the exclusive nature of the account was emphasized. "'This is for you and one other guy,'" the executive said he and his colleague -- who did open the account -- were told.
"The idea of names being on brokerage statements doesn't strike me as peculiar," said a CSFB spokesman who was told about the statements. "The idea that a broker would call to try and get business doesn't strike me as inappropriate."
The former Silicon Valley exec said that much of the actual work for the company's offering was done by Bill Brady, head of global technology corporate finance at CSFB. The approach is typical of the way CSFB's tech group sells itself to executives.
Quattrone secures the underwriting business for the bank while Brady does the actual work on the deal. It's a close partnership: Quattrone can be hot-headed and abrasive; Brady is a polite charmer who pours oil on the troubled waters Quattrone has roiled.
Quattrone, Brady and CSFB's mergers and acquisitions guru, George Boutros, are considered the "Three Amigos" of tech banking in Silicon Valley. The three worked together at Morgan Stanley until 1996 when they left in a blaze of publicity and opened a Silicon Valley tech banking practice for Deutsche Bank.
In July 1998 -- after months of denying talk that they were leaving what was then known as the Deutsche Bank Morgan Grenfell Technology Group -- Quattrone, Brady and Boutros moved their practice to CSFB, taking a larger group of bankers, analysts and support staff with them.
Grunwald may have been hoping to make it a quartet. "You almost got the sense that Mike was running the (private banking) group and John was ready to retire -- taking a less active role," the former employee said, adding that Schmidt had assured her that the accounts the private banking division opened weren't illegal.
Grunwald is certainly close to Brady. He rented an apartment that is part of Brady's residential property on San Francisco's Telegraph Hill -- just below the landmark Coit Tower -- so the two men had the same address listing in the phone book. Brady's massive home is located on the western slope of the hill with panoramic views from the Golden Gate Bridge to the East Bay.
Neither Schmidt nor his attorney, Robert Momoro, could be reached for comment. Grunwald, who once served in the U.S. Department of the Treasury, also could not be reached for comment. His attorney, Brad Brian, declined to comment.
California's criminal bar is abuzz over the CSFB matter, with some former prosecutors speculating that the U.S. attorney in Northern California -- which is in the process of beefing up its San Francisco securities fraud office -- may be working on the investigation.
"You know how this works," said one former New York prosecutor now working in Silicon Valley. "Concentric circles. You squeeze and squeeze."
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