Credit Suisse First Boston under fire for Conflict of Interest, Misleading Clients

"They mocked investors," says regulator.Compiled from reports from USA Today, The Wall St. Journal, Reuters:

Amid charges of conflict of interest in investment firms, Credit Suisse First Boston (CSFB) has stood out as particularly bad in an investigation by Massachusetts regulators.

State securities regulators report that they have evidence of misconduct by the large broker.

To win business from companies in its investment banking division, the company took advantage of investors in its brokerage division. It had its analysts give favorable ratings to companies that it provided investment banking services to, even if those companies were not worthy of investment by the brokerage division's clients.

Regulators point to CSFB's relationship with the company Research in Motion (RIM), which makes the Blackberry line of pagers.

They have obtained an E-mail from Frank Quattrone, CSFB's co-head on Internet investment banking, that shows supposedly neutral analysts were pressured to alter ratings to help generate business for CFSB.

The e-mail stated that RIM had paid CSFB "the extra $1.8 million" and that the analysts should therefore resume coverage with a favorable rating. The brokerage division of CFSB then resumed covering RIM with a "buy" rating.

Massachusetts Secretary of State William Galvin called the e-mail a "smoking gun in the area of criminal responsibility".

Regulators also found that CSFB pitched its investment banking services to tech firm Virata in July 1999, with a graphic that said "CSFB Stands by its Clients". The presentation included a chart showing that the firm did not cut its ratings on client companies that issued negative news, while its competition did. This is considered further evidence of the investment banking side of the company influencing the analyst side. Further evidence of ordinary investors being played for patsies.

Regarding his CSFB investigation, Galvin said: "One of the most significant allegations in this complaint relates to the fact that the investment banking division of Credit Suisse First Boston completely controlled the analysis and research effort of the tech group …More significantly, the effect of this was to influence the advice and the research that was presented and given.

"That research and advice was tainted and corrupted by the desire of the company for profit through its investment banking division. Replete in all the materials we've seen has been ample evidence of that fact, and this is unacceptable. . . .

"We also see a cavalier attitude on the part of the company, an attitude that suggested not only were they happy to give bad advice but they took pleasure in it. More importantly, they mocked investors, they mocked the efforts of regulators to make sure that they complied with the law."

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