441 F.3d 153 (2nd Cir. 2006), 04-5007, United States v. Quattrone

Docket Nº:04-5007-CR.
Citation:441 F.3d 153
Party Name:UNITED STATES of America, Appellee, v. Frank QUATTRONE, Defendant-Appellant.
Case Date:March 20, 2006
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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441 F.3d 153 (2nd Cir. 2006)

UNITED STATES of America, Appellee,

v.

Frank QUATTRONE, Defendant-Appellant.

No. 04-5007-CR.

United States Court of Appeals, Second Circuit.

March 20, 2006

Argued: July 12, 2005.

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Mark F. Pomerantz (John H. Longwell, Christopher Hyde Giampapa, Tina Samanta, Joshua Hill, and Barbara Llanes, Paul, Weiss, Rifkind, Wharton & Garrison, LLP; Andrew L. Frey, Andrew H. Schapiro, and Lauren R. Goldman, Mayer, Brown, Rowe & Maw LLP, New York, New York, on the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendant-Appellant.

David B. Anders, Assistant United States Attorney, Southern District of New York (David N. Kelly, United States Attorney, on the brief, Jessica A. Mordas and Harry Sandick, Assistant United States Attorneys, of counsel) New York, NY, for Appellee.

Before: WESLEY and HALL, Circuit Judges, and SCULLIN, Chief District Judge. 1

WESLEY, Circuit Judge.

This case arose out of parallel investigations 2 of Initial Public Offering ("IPO") allocation practices alleged to have been employed by Wall Street investment-banking firms, including Credit Suisse First

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Boston Corporation ("CSFB"). 3 The investigations focused on allegations that allocations in forthcoming "hot issues" 4 were tied to the payment of inflated commissions for trades of highly liquid stocks on the secondary market. E.g., J.A. 646 (Gov.Ex. 300).

Defendant was indicted for obstruction of justice and witness tampering in connection with the investigations. The indictment alleged three counts against Quattrone. Count 1 charged violations of 18 U.S.C. §§ 1503 & 2 for corruptly endeavoring to obstruct a grand jury proceeding, J.A. 45; Count 2 charged violations of 18 U.S.C. §§ 1505 & 2 for corruptly endeavoring to obstruct the SEC investigation, J.A. 45-46; and Count 3 charged witness tampering in violation of 18 U.S.C. §§ 1512 & 2 for knowingly and corruptly persuading or endeavoring to persuade others to withhold or destroy documents with intent to interfere with the proceedings, J.A. 46-47. The jury was unable to reach a verdict in Quattrone's first trial. The second resulted in a guilty verdict on all counts. The district court imposed a sentence of 18 months' imprisonment. 5

On appeal, Quattrone challenges the sufficiency of the evidence of his intent, jury instructions on the elements of the crimes charged, certain evidentiary and trial-management decisions, and the sentence imposed. Because the jury instructions were erroneous, we VACATE the judgment and REMAND for a retrial. Further, in the interest of justice, we direct that the case be reassigned to another judge sitting in the United States District Court for the Southern District of New York. 6

Background

A. Quattrone's Role as the Head of the Tech Group at CSFB

CSFB is a global, full-service investment banking firm. J.A. 100 (Tr. 621-22). In 2000, CSFB was principally divided into three business divisions--the Investment Banking Division ("IBD"), the Equity Division, and the Fixed Income Division. J.A. 100 (Tr. 623-24). IBD rendered financial services and advice to companies and governments. J.A. 100 (Tr. 621-22). J.A. 100 (Tr. 622). The Equity Division managed the purchase and sales of securities by CSFB in the public markets, including the New York Stock Exchange. J.A. 100 (Tr. 623-24).

In certain business areas, CSFB was further divided into groups within each division or into collaborative groups that performed functions that would otherwise be executed by more than one division. J.A. 100-01 (Tr. 624-26). As relevant

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here, CSFB conducted business through two groups--the Equity Capital Markets Group ("ECMG") and the Global Technology Group (the "Tech Group"). ECMG functioned as a joint group between IBD and the Equity Division and was responsible for bringing IPOs to market. J.A. 100-01 (Tr. 624-25). The Tech Group was responsible for CSFB's investment-banking activity related to technology ("Tech") companies, including underwriting services. J.A. 102 (Tr. 629-30). The Tech Group provided services to two types of customers--Tech company issuer-clients undertaking offerings of equity-based securities and individual customers who traded securities as clients of the Tech Group's Personal Client Services subgroup ("Tech PCS"). J.A. 480 (Tr. 2115). Tech PCS clients were often high-level executives and officers of Tech companies.

In 2000, CSFB employed Quattrone as head of the Tech Group. J.A. 101 (Tr. 626). In that capacity, Quattrone managed 400 technology investment bankers from the firm's Palo Alto, California office. Quattrone and members of the Tech Group provided services in connection with the underwriting of Tech IPOs, "including soliciting underwriting business from issuing companies; negotiating the terms of CSFB's underwriting relationship with issuing companies ...; conducting 'due diligence' of the issuing companies; assisting in marketing the IPO ...; assisting in determining the [offering] price ...; and assisting in allocating shares of the IPOs among investors." Appellee Br. 5-6.

B. The Government's Evidence at Trial

1. Evidence Concerning the Investigations and Quattrone's Awareness of the SEC and Grand Jury Investigations

In May 2000, the National Association of Securities Dealers ("NASD") launched an investigation into "CSFB's underwriting of the IPO of VA Linux Systems, Inc. ('VA Linux'), widely regarded as the 'hottest IPO in the history of Wall Street.' " Appellee Br. 8 (quoting J.A. 124-25 (Tr. 714-20)). On May 17, 2000, the Enforcement Department of NASD Regulation ("NASDR") issued a document request to CSFB that indicated the NASDR was conducting a review of certain offerings and requesting all documents relating to the allocation of the VA Linux IPO. J.A. 638 (Gov.Ex. 11). Quattrone never saw the document request.

Documentary evidence--in the form of emails received or sent by Quattrone--established that in early June 2000 Quattrone learned of the NASD's investigation into the VA Linux IPO and that the investigation had called for all documents relating to CSFB's allocation process. J.A. 642 (Gov.Ex. 102). On June 2, 2000, CSFB's Legal Compliance Department ("LCD") advised Quattrone and others via email that LCD had received an inquiry from the NASDR in connection with that IPO and that all documents relating to the IPO should be preserved. J.A. 641 (Gov.Ex. 100). Twenty-three minutes after receiving the email, Quattrone responded, inquiring as to the nature of the investigation. J.A. 640 (Gov.Ex. 101). Three days later, a CSFB attorney replied that the investigation seemed directed "toward the allocation process" and that "[t]he request is extremely broad and requires production of all documents[,] including e-mails and voice-mails relating to the allocation process." J.A. 642 (Gov.Ex. 102).

In July 2000, Quattrone learned that the SEC's Office of Compliance Inspections and Examinations was investigating CSFB's underwriting process. J.A. 131 (Tr. 743). On July 10, 2000, Quattrone

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received an email from an LCD employee informing him that CSFB had received notice that the "the SEC [would] be conducting an examination of CSFB's Equity Underwriting Process" and had called for CSFB documents "regarding the equity underwriting process, including, but not limited to, the engagement of the client, the pricing of the issue [being sold], and the allocation process." J.A. 645 (Gov.Ex. 201).

On September 20, 2000, Quattrone, along with other senior CSFB executives, was informed by Michael Radest, then the head of LCD, that the SEC had transferred its investigation to the Division of Enforcement: "We have been informed today that the SEC's examination of our IPO allocation process has been referred to the SEC's Division of Enforcement. We also understand that the SEC has contacted certain customers of the Firm in conjunction with this investigation." J.A. 648, 480 (Gov. Ex. 400; Tr. 2114). In response, Quattrone immediately forwarded the email to David Brodsky, then General Counsel for the Americas and a Managing Director at CSFB, J.A. 254 (Tr. 1229), inquiring whether it was "ok to copy [J]ohn [S]chmidt who runs our [T]ech [PCS] group?" 7 Brodsky replied that Quattrone should not, as the communication would not be privileged and it was likely that Quattrone could be called as a witness before the SEC. Because Quattrone might be called, Brodsky wished to avoid "any inference whatsoever that anyone was trying to influence anyone else's testimony." J.A. 650 (Gov.Ex. 402).

On October 18, 2000, the SEC issued a formal administrative order authorizing SEC staff to issue subpoenas and to take testimony in connection with the investigation into CSFB's allocation practices. 8 Appellee Br. 11. That day, the SEC issued a subpoena duces tecum to CSFB. J.A. 676-80. The subpoena focused on two specific IPOs--VA Linux and Selectica, Inc.--and demanded production of "[a]ll documents ... relating to CSFB's policies and procedures for the allocation of IPO shares." J.A. 678. Quattrone never saw the SEC's subpoena or earlier document requests.

During October 2000, Quattrone received several emails from LCD personnel seeking documents relevant to the SEC's investigation of CSFB's IPO allocation practices and responded to them by directing his assistant to produce relevant documents or by informing LCD personnel that he was not involved with the transactions in question. See J.A. 685-88, 691-94 (Gov.Exs.504-06, 508, 510-12,...

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