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Two Boston Companies: 1 Hot, 1 Cold, Result in Two Very Different Outcomes

By Floyd Norris

The New York Times -- They were the two most notable initial public offerings of January 2000. One was cold, and one was very hot. Now the underwriter of the hot offering is on trial, and buyers of the cold one are counting their profits.

Together, the tales of the two companies reinforce the eternal truth that the things investors crave the most can turn out to be the least worth owning -- and vice versa. In an unusual symmetry, buyers of the cold offering have made 99 percent while purchasers of the hot one have lost 99 percent.

The hot offering was 724 Solutions, an Internet company that was long on buzz but had never made money. Its lifetime revenues came to $1.3 million. It went public on Jan. 27, the first offering of the new year from Credit Suisse First Boston, whose technology team had scored the biggest gains of any underwriter of new issues in 1999. Within weeks it was up 800 percent.

The cold offering went public a day earlier. John Hancock Financial, which traced its history back to 1862 but was viewed as a stodgy company in a boring industry, raised $1.7 billion in the offering. It was the biggest of the month, but the price soon fell.

On Sunday, the cold stock, John Hancock, announced that it had agreed to be acquired by Manulife, a Canadian insurance company, in an all-stock transaction that values Hancock at roughly twice the price at which it went public in 2000.

On Monday, jury selection began in New York for the trial of Frank P. Quattrone, who as the head of the technology team at Credit Suisse First Boston was responsible for underwriting the 724 Solutions offering. Quattrone is accused of telling his assistants to destroy documents after an investigation of initial public offering abuses had been begun by securities regulators.

The federal trial does not directly involve any offerings, but the National Association of Securities Dealers, a regulatory organization, has accused Quattrone of violating its rules in seeking underwriting business from companies including 724 Solutions.

The NASD said Quattrone let officials of technology companies in on hot offerings to gain their favor for future offerings.

According to the NASD charges, which are pending, Quattrone sought the 724 Solutions underwriting with a “pitch book” promising that the firm’s analyst, Marc A. Cabi, would “pound the table” and be the “strongest advocate” for the company, which had hopes of establishing its technology in mobile networking.

Cabi did strongly recommend the shares, and they were an instant hit. When the company filed to go public, it mentioned a price range of $11 to $13 a share. But the offering was priced at $26 and leaped to almost $72 the first day. On March 9, as the Internet fever peaked, the shares traded as high as $240.

Last year, Credit Suisse First Boston agreed to pay $100 million to settle charges by the Securities and Exchange Commission and NASD that it had forced some buyers of hot initial public offerings from April 1999 through June 2000 to share their profits with the firm through such methods as charging excess commissions on other trades.