On March 20, 2006, the Second Circuit held unanimously that the trial judge’s instructions to the jury were deficient and that Frank Quattrone, former Credit Suisse First Boston LLC banker, did not receive a fair trial on charges that he instructed subordinates to destroy documents subject to a grand jury subpoena. The court also reassigned the case to a new trial judge, stating that comments made by U.S. District Judge Richard Owen “could be viewed as rising beyond mere impatience and annoyance.”

The Second Circuit panel found that Judge Owen’s jury instructions failed to find a “nexus” between Quattrone’s “clean-up” e-mail and a grand jury probe into the way Credit Suisse disseminated shares in initial public offerings, and also found that the jury instructions improperly failed to make clear that the jury need to find that Quattrone knew that grand jury and SEC subpoenas specifically called for the documents that would be destroyed.

Prior to his conviction being thrown out, Quattrone faced an 18-month prison sentence but was free pending appeal. The Second Circuit’s decision, however, does not completely vindicate Quattrone. In fact, Judge Wesley’s 61 page opinion emphasizes the strength of the evidence against Quattrone, and held that it was more than sufficient for conviction on charges of obstruction and attempted witness-tampering. Quattrone may possibly face a third trial at this point since his first trial ended in a hung jury and his 2004 conviction was overturned.

The reversal of Quattrone’s conviction marks the second instance in less than one year that a major white-collar obstruction case has been overturned due to deficient jury instructions. Similarly, in May 2005, the Supreme Court reversed the guilty verdict against Arthur Andersen and held that the jury should have been required to find that Andersen acted with criminal intent.

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The U.S. Chamber of Commerce issued a report on the enforcement efforts of the SEC. The report contains fifteen recommendations, some of which tie back to the report of the Wells Commission. Among the recommendations is one that states the SEC “should review the reasons for recent litigation setbacks, and should consider whether . . . [it] is attempting to shift the standards for civil liability . . .” Other recommendations suggest that the SEC consider: using formal reprimands in some cases as suggested in the 1972 Wells Committee; clarify the standards for seeking fines; make it clear that a waiver of attorney-client privilege is not required to be viewed as cooperative; not impose fines for lack of cooperation; make it clear that it will not deem it to be uncooperative if a company indemnifies an employee or advances legal fees and expenses in connection with an SEC investigation or litigation; and view good faith reliance on attorneys and accountants as relevant to enforcement decisions. The full report is available on the Chamber’s web site at http://www.uschamber.com/publications/reports/0603sec.htm

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