Spring is a time for getting rid of things that are outdated, have served their purpose or are just plain wrong.  However, sometimes when companies do a little spring cleaning they can get in a lot of trouble.  Obstruction of justice is a serious crime and one that the government has pursued vigorously in recent years.  One such case started five years ago when the SEC began an investigation of Credit Suisse First Boston (CSFB) which led to charges of obstruction of justice against CSFB investment banker Frank Quattrone. [1]  Last year a jury found Quattrone guilty of the charges and he was sentenced to 18 months in prison. [2] However, on March 20, 2006 the 2nd Circuit did a little spring cleaning of its own by vacating the verdict. [3] Now the question is whether the government will let this case stay in the trash or if they will drag it back to court for the third time.

In the 1990’s Quattrone was one of the biggest names on Wall Street. [4]  Until the 2nd circuit decision he was one of the most prominent Wall Street names to be charged and criminally convicted. [5] Known for his success in Silicon Valley in the dot-com boom, Quattrone helped some of the most successful technology companies go public including Netscape and Amazon. [6]  At CSFB, Quattrone was responsible for helping over 138 companies go public. [7]

The story of Quattrone began in 2000 when the Securities and Exchange Commission (SEC) began an investigation into CSFB’s role in initial public offerings that took place in 1999 and 2000. [8]  The investigation originally centered on the allocation shares of stock for hot technology IPOs that occurred during the dot-com bubble and concerns that the bank was soliciting kickbacks from preferred investors in these especially hot offerings. [9]  As early as September, Quattrone and other CSFB investment bankers were informed about the investigation. [10]  On November 21, 2000 CSFB was served a grad jury subpoena for the IPO related documents. 

What got Quattrone into trouble occurred on December 5, 2000.  On that date Quattrone forwarded an e-mail to company employees on the document retention policy. [11]  The e-mail stated “[w]e strongly suggest that … you should catch up on file cleaning.” [12]  The e-mail reiterated the CSFB policy on document retention. [13] Indicted on May 12, 2003 by a federal grand jury, Quattrone was charged with three counts of obstructing justice and witness tampering. [14]  The government contends that “Quattrone sought to obstruct grand jury and SEC investigation of CSFB’s practices in allocating shares of certain initial public offering … securities by directing hundreds of his subordinates to destroy IPO-related documents.” [15]  In his defense, Quattrone has claimed that he did not understand what documents the government has subpoenaed in the investigation and that he never had the intention of interfering with the proceeding. [16]

The government has not had an easy time trying the Quattrone case. On September 29, 2003 the first trial began. [17]  However, in October, after six days of jury deliberation a mistrial was declared.  A second trial began in April of 2004. [18] In May, Quattrone was convicted and by September he was sentenced to 18 months in prison. [19]  Nevertheless, Quattrone has yet to serve a day of his sentence.  Left free while he appealed the case, on March 20, 2006 the court tossed out the conviction and remanded it for a new trial citing improper jury instructions. [20]

The main fault in the second trial was that the judge’s instructions to the jury allowed a conviction without having to first determine if Quattrone knew he was obstructing a federal investigation. [21]  In its 61 page ruling the court cited the 2005 Supreme Court decision reversing and remanding the conviction of Arthur Anderson for obstruction of justice in relation to the Enron case. [22]  The court applied the decision to Quattrone’s case stating, “[u]nder the charge, the jury was allowed to convict Quattrone of obstruction regardless of whether he intended such.” [23]  As a professor of securities law states, “[t]he critical requirement for obstruction of justice, according to the Second Circuit, is that the defendant had to be aware that the specific documents destroyed were requested by the subpoena, and that his actions were likely to affect the subpoena.” [24]  Without this element the crime would amount to strict liability, a standard rarely applied. 

Those that criticize the government for being over aggressive in cases against corporate America, praise the decision. [25]  There is a perception by some that the zeal that lead to the investigation of Quattrone can be a bad thing; especially when it results in reversals.  [26]  And this is the second major blow to the Justice Department in less than a year with the Arthur Anderson Case being reversed last year.  [27]  The combination of these reversals seems to give the defense in these corporate fraud litigations a bit of help and is likely to cause higher scrutiny of jury charges. [28]  One attorney called the decision “‘a reminder to judges that even if there is significant evidence, if the jury instructions are materially flawed, there’s going to be a reversal.  It’s a reminder that the law is still the law.” [29]

Additionally, Some business believe that this ruling might mean that they need not worry as much about what gets thrown out in the trash and what is retained. [30]  The 2nd Circuit decision in Quattrone combined with the Supreme Court’s ruling in Arthur Anderson cements the need for prosecutors to prove knowledge of the charged party for the act of obstruction.  While “the government has increasingly held the position that companies were required to retain documents that someday could be subject to probes…” some feel that the Quattrone ruling means that “‘every businessman is not required to think about whether some future investigation may be implicated when he throws something in the trash can.’” [31]  Though businesses also realize that the moment there is some knowledge that an outside investigation is beginning, documents must be frozen.  [32] Regardless of what companies are thinking Quattrone is not completely out of court yet. 

Now there is the question if third time is a charm for the government to be victorious in the Quattrone case or if it is time to let go of the matter.  Legal experts have noted that the government still has a strong case.  One attorney has stated that “‘The circuit court didn’t find the evidence unpersuasive…Instructions can be cured, whereas presentation of evidence can’t be cured.’” [33]  The appeals court seems to be saying in their opinion that if the judge had correctly instructed the jurors, it is likely that Quattrone would still have been convicted. [34] This endorsement of the appeals court increases the chance that the case will be tried again.  [35]  One former prosecutor thinks that because the case was thrown out on flawed jury instructions, it is likely that the government will not “walk away” from another trial. [36]  Contrastingly, a different former federal prosecutor admits that it is not uncommon for a case to be tried twice, but when it goes to a third time, the inclination to continue is much less. [37] 

The decision of whether to retry the Quattrone case rest with US attorney Michael Garcia who has yet to state publicly what his next move will be. [38]  Part of the consideration is that much has changed since the start of the investigation into Quattrone in 2001.  First, prosecutor’s that initiated the case have left to go to private practice. [39]  Second, the office has, by some estimates, has already spent thousands of hours and millions of dollars on the case against Quattro. [40]  Moreover, in the time that has passed since the initial case was filed, the government has been successful in obtaining several high-profile white collar convictions. [41]  Thus, there is a question as to what purpose trying Quattrone again would serve, especially because there is no evidence that documents were actually destroyed as a result of Quattrone’s e-mail and it is a crime that Quattrone is unlikely to repeat. [42]  Nevertheless, fear of appearing weak or relaxing the tough stance that the government has taken on white-collar crime may be enough to cause Quattrone to be tried a third time. [43]

The saying goes that one person’s trash is another’s treasure.  No where does that ring truer than in the rules for document retention policies; what a company throws out may be exactly what an investigation is seeking.  In this case there may not have been any documents thrown out as a result of Quattrone’s actions, but after two tries this case may finally be in the trash bin. 

[1] Greg Farrell, Quattrone’s Obstruction Conviction Thrown Out, USA Today, Mar. 21, 2006, at 1-B.

[2] Larry Neumeister, After Quattrone Ruling, Companies May Find it Easier to Toss Files (Mar. 22, 2006), http://news.findlaw.com/ap/o/51/03-22-2006/735e001c3b8a9050.html.

[3] U.S. v. Quattrone, 2006 U.S. App. LEXIS 6911 (2d Cir. Mar. 20, 2006).

[4] Quattrone Gets New Trial: U.S. Appeals Court Overturns Conviction of Dot-Com Banker, Chi. Trib., Mar. 21, 2006, at C-1 [hereinafter Quattrone].

[5] Id.

[6] Conviction Overturned for Banking Star Quattrone (NPR Broadcast Mar. 21, 2006) [hereinafter Conviction]; Frank’s New Friends; The Quattrone Case, The Economist, Mar. 25, 2006 [hereinafter Frank’s Friends]. Both of these successes occurred prior to Quattrone joining CSFB.  Id.

[7] Frank’s Friends, supra note 6.

[8] How the Quattrone Case has Unfolded, USA Today, Mar. 21, 2006, at 2-B [hereinafter Unfold].

[9] Farrell, supra note 1; Quattrone, supra note 4; Julie Creswell, To Some, Need for Third Trial of Ex-Banker Isn’t Evident, N.Y. Times, Mar. 24, 2006, at C-1 (CSFB settled the regulatory action by paying $100M).

[10] Unfold, supra note 8.

[11] Id.

[12] U.S. v. Quattrone, 2006 U.S. App. LEXIS 6911, at *18 (2d Cir. Mar. 20, 2006).

[13] Id. at 17.

[14] Unfold, supra note 8.

[15] Quattrone, 2006 U.S. App. LEXIS 6911, at *23.

[16] Conviction, supra note 6.

[17] Unfold, supra note 8.

[18] Id.

[19] Id.

[20] Creswell, supra note 9.

[21] Farrell, supra note 1.

[22] Neumeister, supra note 2; U.S. v. Quattrone, 2006 U.S. App. LEXIS 6911, at *59 (2d Cir. Mar. 20, 2006); see also Arthur Anderson v. U.S., 544 U.S. 696 (2005).

[23] Quattrone, 2006 U.S. App. LEXIS 6911, at *57.

[24] Conviction, supra note 6 (quotation marks omitted).

[25] Frank’s Friends, supra note 6, Shaheen Pasha, The Quattrone Lesson: Proceed with Care (Mar. 21, 2006),  http://money.cnn.com/2006/03/21/news/newsmakers/quattrone_impact/index.htm (discussing the overaggressive prosecution that was sparked after Enron).

[26] Pasha, supra note 25.

[27] Id., Arthur Anderson v. U.S., 544 U.S. 696 (2005).

[28] Pasha, supra note 25.

[29] Id.

[30] Neumeister, supra note 2.

[31] Id.

[32] Id.

[33] Farrell, supra note 1.

[34] Conviction, supra note 6.

[35] Id.

[36] Creswell, supra note 9.

[37] Quattrone, supra note 4.

[38] Id.

[39] Creswell, supra note 9.

[40] Id.

[41] Id., Pasha, supra note 25.

[42] Creswell, supra note 9; Frank’s Friends, supra note 6.

[43] Creswell, supra note 9.