March 21, 2006
Quattrone: Third Time is a Charm?
Posted by Christine Hurt

Three Now that Frank Quattrone's conviction has been reversed and a new trial ordered, it's time to ask whether we need a third trial here.  The first trial ended in a hung jury.  The second trial ends in a conviction, but the conviction is overturned and a new trial ordered to be heard by a different trial judge.  Will there be a third trial?  In the previous two trials, the judge allowed the prosecution to enter into evidence Quattrone's compensation at CSFB ($120M in 2000).  Perhaps the defense will be allowed to enter into evidence the amount of taxpayer money spent on prosecuting Quattrone not for a substantive crime but for obstruction of justice and witness tampering related to an email reminding employees of a document retention policy.  Surely a cost-benefit analysis is needed here.

And what is the deterrence goal met here should Quattrone ever have a prison sentence?  Don't spin IPO shares?  Don't engage in quid pro quo IPO allocations?  No.  Now, employees of corporations won't send around emails reminding others of the document retention policies.  They will go around to offices and remind others of document retention policies.  From one prosecution a thousand CLEs have bloomed on walking the line in document retention.

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Comments (4)

1. Posted by David Zaring on March 21, 2006 @ 16:17 | Permalink

Uh, while I'm continuing to hand out boquets to Christine (call me about guest blogging!?!), I think I agree with this observation even more. This trial is soooo dumb. The fact that they got one conviction and one almost-conviction out of it makes me think that Ken Lay is doomed, doomed, doomed.

2. Posted by Peter Henning on March 21, 2006 @ 18:56 | Permalink


I'm a little puzzled by the reaction to the prospect of a third trial. In the first trial, one juror voted to acquit and the others voted guilty, and in the second, a jury unanimously found Quattrone guilty. The verdict may have been influenced by Judge Owen's favoritism toward the government, but we don't know that for sure, and the flaw there is not directly traceable to the prosecutors except to the extent they did what any litigator would do in seeking a favorable verdict. The Second Circuit did find that sufficient evidence was introduced to find him guilty, a fairly low standard on appeal but convictions have been reversed on insufficiency grounds, so there is at least some basis for the charges and conviction.

You say that this is not a "substantive offense" but I'm not clear what that means. Can the government not charge this crime unless it also charges the underlying conduct as criminal? In other words, there is no obstruction of justice unless (a) a crime can be proven related to the investigation and (b) the obstruction must be unsuccessful in order to be charged? It may be that the entire investigation of IPO allocations was flawed and never should have been initiated, but the threshold for a grand jury and SEC investigation is quite low (basically the "if it smells bad" test). I'm not sure how the assertion that obstruction is not a "substantive offense" changes the analysis of the prorpiety of seeking a third conviction. It may be that this type of crime is "victimless" so the government should not expend resources to this degree, although the flaw in one count was due to the change in the analysis of Section 1512 created by the Supreme Court in Arthur Andersen, which cannot be counted against the prosecutors for proposing the then-proper instruction. If pure cost-benefit is the determining factor, how do we measure the benefit of any criminal prosecution that results in a prison sentence requiring further expenditures by the government to feed and house the prisoner. I'm not sure how that analysis plays out.

peter henning

3. Posted by Christine on March 21, 2006 @ 20:16 | Permalink

Peter, all good questions, but ones that I have been thinking about for awhile. I suppose my frustration with the prospect of a third trial is a continuation of my frustration with the first. If the DOJ thinks that Quattrone was spinning IPO shares, then let's charge him with that. However, I'm not sure that the DOJ knows that this is a crime. They have emails between him and Michael Dell that spell out, let me in on this IPO, and we'll talk about I-bank work. So, bring that charge if that is indeed a crime. But don't bring a charge of obstruction for possibly obstructing something that possibly was a crime. (See, e.g., Martha Stewart and AA. Was there insider trading? Was there accounting fraud? We'll never know.)
Can you imagine every time the police question someone with respect to a murder or a robbery the police prosecuting questioned persons for being vague about an alibi? Even when never prosecuting them for the underlying crime? We have no evidence tying you to the crime, but you said you went to the movies, and we know that you were at home alone. That's not a good use of prosecutorial resources, and neither is a third trial for Quattrone.
Resources would be better spent prosecuting cases for the actual crimes we want to deter so that future actors will now the limits of spinning, insider trading, and accounting fraud as the law surrounding those rules builds! Just my opinion.

4. Posted by Anita on March 31, 2006 @ 13:17 | Permalink

Ken Lay is doomed that's what comes to mind first. I think that it's better to let a guilty out that to sentence a not guilty person.

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