Why is Frank Quattrone credited with contributing to the growth of the dotcom bubble?

By Andrew Beattie AAA
A:

Frank Quattrone was one of the most powerful figures during the dotcom bubble. He was one of the first investment bankers to recognize the potential of the fledgling companies in Silicon Valley and established himself on the ground floor long before venture capital flooded in.

Quattrone was known and trusted by the entrepreneurs and, as the bubble heated up, he acted as the middleman between them and the venture capitalists looking to get in. His understanding of the needs of technology firms versus the demands of investors made him a rainmaker of extraordinary value. As the lead of Morgan Stanley's Global Technology Group, Quattrone ushered in the Netscape IPO - the largest IPO in Wall Street's history at that time. When he sought more power over analysts issuing reports on his IPOs, Morgan Stanley refused and watched as their rainmaker jumped ship.

Quattrone changed employers several times during the boom, receiving more money and power at each stop. At Credit Suisse First Boston, he was granted control over the compensation system for analysts and his own people in the IPO section. Quattrone also gained control over the pre-IPO share allocations he gave to potential clients in order to attract business. Using the double incentive of favorable analyst recommendations and a kickback in pre-IPO shares, Quattrone attracted more internet firms to CSFB than any other investment bank. The fees paid to CSFB for handling an IPO were not cheap, but the personal compensation given to the CEO through spinning put the CEO's personal desire above the interests of his or her company.

After the internet boom went bust, Quattrone was targeted by the NASD for breaking down the Chinese Wall. He sent a controversial email to his employees reminding them to follow procedure in destroying any documents related to the upcoming case. With vital evidence now deleted, that email became the smoking gun that hinged the case. Quattrone did not bring about the internet boom all by himself, but every other investment bank mimicked his strong arm tactics with their analysts. Investors, sadly, took many of the analysts on their word. The total cost to investors on the internet bubble has been estimated as high as $5 trillion. Further, a general loss of faith in Wall Street followed the "revelation" that analysts were far from impartial. Although Quattrone was convicted on circumstantial evidence in a second trial, his conviction was overturned on appeal in 2006. Throughout the trial, CSFB stood behind their rainmaker and his business tactics.

(For more on the dotcom bubble, read Crashes: The Dotcom Crash.)

This question was answered by Andrew Beattie.

RELATED FAQS

  1. What's the difference between limited liability partnership and general partnership?

    Learn the differences between general partnerships and limited liability partnerships; each type has unique traits, benefits ...
  2. What do real estate investors look for in a property?

    Profit from real estate investments by either flipping homes or becoming a landlord. Learn best practices for a successful ...
  3. What is the goal of real estate wholesaling?

    Invest in real estate with minimal capital through wholesaling. There is no remodeling or carrying costs. Rather, a quick ...
  4. How is a penny stock created?

    Understand how penny stocks are issued and regulated, and learn how these sometimes rewarding but always risky investments ...
RELATED TERMS
  1. Asset Management and Disposition Agreement (AMDA)

    A type of contract between the Federal Deposit Insurance Corporation ...
  2. Provisional Patent Application

    A short-term means of protecting an invention that requires less ...
  3. Franchise disclosure document

    A Franchise Disclosure Document (FDD) is a legal document presented ...
  4. Michael Bloomberg

    Michael Bloomberg is one of the wealthiest persons in the world ...
  5. Mark Zuckerberg

    Self-taught computer programmer and self-made multi-billionaire ...
  6. Sergey Brin

    Sergey Brin is best known as the co-founder of Google.
comments powered by Disqus
Related Articles
  1. Essential Tips For Would-Be Entrepreneurs
    Entrepreneurship

    Essential Tips For Would-Be Entrepreneurs

  2. Why, How, Where and When Entrepreneurs ...
    Entrepreneurship

    Why, How, Where and When Entrepreneurs ...

  3. Why Entrepreneurs Are Important for ...
    Entrepreneurship

    Why Entrepreneurs Are Important for ...

  4. What Bill Gross, Steve Jobs and Steve ...
    Investing News

    What Bill Gross, Steve Jobs and Steve ...

  5. Entrepreneur Vs. Small Business Owner, ...
    Investing Basics

    Entrepreneur Vs. Small Business Owner, ...

Trading Center