Frank Quattrone: Comeback Kid

His new tech-focused investment bank, Qatalyst, will focus on M&A and investing in new businesses. Will his touch still be golden?

by Aaron Ricadela

Frank Quattrone Stephen Chernin/Getty Images

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California has always been a land of second chances. Now, the banker Frank Quattrone, who helped finance Silicon Valley's boom of the 1990s and was later cleared of federal obstruction-of-justice charges, is betting he can stage a comeback in the state's once-again bustling technology corridor.

On Mar. 18, Quattrone, who helped take some of the technology industry's most successful companies public and advised clients on hundreds of deals, announced he's starting a tech-focused investment bank called Qatalyst Group. The company, which includes former colleagues from Quattrone's days at Credit Suisse (CS), will proffer advice on mergers, acquisitions, and financing, as well as invest in promising new businesses alongside venture capital and private equity firms. While it's waiting for regulatory approval to hang a shingle as an independent firm, Qatalyst will operate as a division of JMP Securities (JMP).

Questionable "Spin"

A new, Silicon Valley-savvy investment bank could gain appeal, with tech-industry financing at its highest in years and full-service investment banks distracted by a broadening liquidity crisis that's already led to the collapse of Bear Stearns (BSC). But Quattrone will be dipping into his substantial Rolodex to scout for deals while attempting to remove the stain of a four-year legal battle with federal authorities as the result of a probe into the allocation of shares from initial public offerings.

"His reputation in Silicon Valley is based upon two facets," says Jay Ritter, a finance professor and IPO expert at the University of Florida. "The positive side is, as an investment banker, he and his team were involved in financing many prominent companies. He was one of the most important players in the financing of Silicon Valley," he says. "The negative is, some of his procedures for attracting business were ethically questionable."

While working as a banker at Credit Suisse, Morgan Stanley (MS), and Deutsche Bank (DB), Philadelphia native Quattrone underwrote some of the tech industry's most successful IPOs, including those of Amazon.com (AMZN), Cisco Systems (CSCO), and Netscape Communications, the startup whose offering sparked the Internet IPO boom of the '90s. But Quattrone was accused of obstructing a federal investigation at the beginning of this decade into allocating shares of hot IPOs to hedge funds. The National Association of Securities Dealers brought a separate case against Quattrone for permitting "spinning," a practice at Credit Suisse and other investment banks of allocating IPO shares into the personal brokerage accounts of executives whose companies did business with those banks. The NASD later dropped the charges.

Boutique Focus

Investigators and academics say spinning was used to ensure companies would remain loyal customers. According to a study by Ritter of companies that went public between 1996 and 2000, executives who received such benefits switched investment banks for 5% of follow-on offerings through 2001, compared with 31% of the time for executives who weren't spun. "It was a successful business strategy at attracting deals," he says. While at Credit Suisse, Quattrone oversaw technology-industry investment banking, with partial oversight of research and brokerage activities. Regulators have since taken measures to separate investment banking operations from the divisions focused on selling research on companies that may also be a firm's clients.