TCS Daily


Are There No Second Acts?

By Dominic Basulto - September 21, 2004 12:00 AM

In any cycle of boom and bust, there are, of course, the larger-than-life personalities and egos that define the era. For the Internet-fueled technology boom of the 1990's, investment banker Frank Quattrone was, for many, the most visible symbol of what they saw as the greed and excess of that era. Thus, when Quattrone was sentenced on September 8 to 18 months in a federal prison for obstruction of justice and fined $90,300, many hailed the move as the fitting end to a turbulent period for the U.S. technology sector. After all, Frank Quattrone was an easily recognizable scapegoat for all the excesses of the Internet boom, prosecuted for his starring role in that period of economic greed much as financier Michael Milken was sentenced to 10 years in prison and fined hundreds of millions of dollars for his role in the junk bond-fueled speculation of the early 1980's.

If Quattrone does indeed serve the full 18-month sentence, it will be interesting to see what happens next. After all, as F. Scott Fitzgerald once famously remarked, "There are no second acts in American lives." If taken at face value, it means that Quattrone will emerge from prison an older but not necessarily wiser man, and either attempt to revive his former life as the karaoke-singing financial adviser to the technology companies of tomorrow -- or simply fade into obscurity.

There is another alternative, though. Maybe F. Scott Fitzgerald was simply wrong. Maybe it is possible to lead a second act in American life. Maybe disgraced corporate icons like Frank Quattrone and Martha Stewart are not destined to serve out their time in prison and simply lead life as it was before, only on a less grand scale.

Take the example of Michael Milken, for example. After a long, hard fall from grace, Milken managed to reinvent himself while still staying true to his professed ideals.

The parallels between Frank Quattrone and former junk bond king Michael Milken are too obvious to ignore. Like Quattrone, Milken took a previously misunderstood area of finance (high-yield bonds) and turned it into rocket fuel for thousands of companies unable to attract financing in the corporate debt markets. In the process, Milken helped Drexel Burnham Lambert transform the world of corporate mergers and acquisitions and become a financial powerhouse. In 1986, thanks to his financial wizardry, Milken took home a paycheck of $296 million. In 1987, Milken nearly doubled that total, to $550 million. In 1989, though, charges of insider trading and racketeering were leveled against Milken, and in 1990, Milken pleaded guilty to securities charges and ended up paying millions of dollars in fines and civil restitution to the SEC.

After serving two years of an original 10-year prison sentence, though, Milken was back at work, trying to translate his theories about capitalism into reality. In 1991, Milken founded the Milken Institute with a mandate to "step outside the box and find new ways to create jobs and generate capital for entrepreneurs." Although barred from the securities industry for life, Milken consistently found new ways to apply his creativity. Milken now considers himself a full-time philanthropist, co-founding the Milken Family Foundation and the Center for Accelerating Medical Solutions. In 1996, he became the chairman of Knowledge Universe, an educational services company that acts as the umbrella company for operating companies such as UNext, LeapFrog and KnowledgePlanet.

Like Milken, Quattrone is too talented and too connected to fade quietly into the night. Quattrone, after all, was the Credit Suisse First Boston technology banker who almost single-handedly created the technology boom that rippled through Silicon Valley. It was Quattrone who took Netscape public in the 1995 IPO deal that kicked off the Internet boom and defined a generation. In the period 1998-2000, Quattrone oversaw 138 technology and Internet-related IPO deals, making him a kingmaker and rainmaker at the same time. During the heyday of the Internet in 2000, Quattrone was pulling down $120 million a year in total compensation while opening doors for scores of new tech companies like Amazon to leave their mark on the U.S. economy.

Just as Milken carved out a "second act" as a philanthropist, Quattrone, too, might find a way to apply his financial know-how and Silicon Valley network to create lasting value in a new sphere of activity. After serving his time at Lompoc Federal Prison in southern California (the same place convicted financier Ivan Boesky spent time in the 1990's for securities fraud), Quattrone too might be able to leverage his talents to see to it that the technologies he championed during the Internet boom somehow find their way into the everyday lives of millions of Americans.

Who knows? Maybe Quattrone will not end up serving a single day of the 18-month prison sentence. The whole case against him, after all, basically rests on a single e-mail message from December 2000 advising employees to "clean up those files." Quattrone's lawyers have already vowed to appeal the ruling, and Quattrone continues to proclaim his innocence. If Quattrone does serve his sentence, though, he will have 18 long months to think about ways that he can leave his mark on American life in another compelling way.


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