High-powered technology banker Frank Quattrone was granted a new trial Monday when a federal appeals court tossed out his conviction on charges he obstructed a government probe of stock offerings at the height of the dot-com boom.
The 2nd U.S. Circuit Court of Appeals in Manhattan said the evidence was sufficient to sustain a conviction but that the May 2004 verdict must be thrown out because the jury was improperly instructed on how to interpret the law.
It also ordered that the case be reassigned to another judge.
Quattrone was sentenced to 18 months in prison after he was convicted of obstruction-of-justice charges related to a federal investigation of initial public offerings of stock. An earlier trial of Quattrone ended in a mistrial when a jury deadlocked.
Quattrone, 50, has been allowed to remain free while appealing his conviction.
Quattrone was one of the biggest names on Wall Street during the 1990s Internet stock boom, supervising 400 technology investment bankers from the Palo Alto, Calif., offices of Credit Suisse First Boston Corp.
The trial of Quattrone focused on what he knew and did after the National Association of Securities Dealers in May 2000 began investigating CSFB’s underwriting of initial public offerings. The NASD has since barred Quattrone from the securities industry for life.
The NASD probe was followed by investigations by the Securities and Exchange Commission and a federal grand jury into how the company handled initial public offerings.
The company was never criminally charged but Quattrone was accused of hindering the federal probe. Prosecutors cited a December 2000 e-mail in which Quattrone endorsed a colleague’s suggestion that bankers “clean up” their files.
Quattrone testified he was following bank policy when he issued the e-mail and that he knew almost nothing about a grand jury subpoena seeking documents involving hundreds of initial public offerings of stock during the late-1990s Internet boom.
In its ruling, the appeals court said the trial judge, Richard Owen, incorrectly told jurors they did not need to find a nexus between Quattrone’s actions and pending investigations of his company.
It said Owen’s instruction was at odds with last year’s U.S. Supreme Court ruling throwing out the conviction of the Arthur Andersen accounting firm for destroying Enron Corp.-related documents.
The Supreme Court in that case ruled that the jury instructions were too broad.
In its ruling, the 2nd Circuit said: “The Supreme Court has made clear that the conduct to be punished, then, must not only be made with wrongful intent but also with a consciousness that the conduct in question is wrongful.”
It added: “We cannot confidently say that if a rational jury was properly instructed, it is clear to us beyond a reasonable doubt that they would have convicted Quattrone.”
Quattrone, who took prominent companies like Amazon.com public during the Internet stock craze, was the highest-profile Wall Street figure since junk-bond pioneer Michael Milken to face a criminal conviction.
His lawyers said Owen also made inconsistent rulings about evidence and testimony that kept their client from getting a fair trial.
The appeals court ordered several changes at any future trial favorable to Quattrone, including the elimination of one line of government questioning that it said went too far and the inclusion of some Quattrone evidence that was kept out.
The appeals court called Owen a dedicated judge but ordered the case reassigned, saying portions of the trial transcript “raise the concern that certain comments could be viewed as rising beyond mere impatience or annoyance.”
Defense lawyers had complained that Owen limited portions of Quattrone’s testimony to “yes” and “no” answers. The appeals court said trial judges “should allow for complete answers by a defendant,” particularly when a defendant is testifying in a criminal trial.
Mark Pomerantz, a lawyer for Quattrone, did not immediately return a telephone message for comment on Monday.
Prosecutors issued a statement saying they were reviewing the ruling and considering their options.
Quattrone’s lawyers had argued that the jury instructions during the trial were deeply flawed. At issue was whether Quattrone actually knew that investigators were seeking the documents he sought to destroy.
The appeals court said the jury was allowed to convict Quattrone if it found that Quattrone “merely called for the destruction of documents that were within the scope of those sought by the subpoenas.”
The appeals court said such a reading of the law would mean that any defendant who urges the destruction of documents might appear to violate the law without any proof that the defendant knew the documents were the subject of a subpoena.
“Clearly, that instruction is not a correct formulation of the law,” it said. “More is required; a defendant must know that his corrupt actions are likely to affect the ... proceeding.”