2 Investor Suits Claim Bias by Morgan Stanley Analyst
Mary Meeker, the Morgan Stanley Dean Witter & Co. analyst once dubbed “Queen of the Internet” for her bullish reports on the sector’s stocks, was named as a defendant Wednesday in a pair of lawsuits alleging she provided biased research on EBay Inc. and Amazon.com.
The suits come amid increasing scrutiny of Wall Street analysts from investors, regulators and Congress. On Tuesday, acting Securities and Exchange Commission Chairwoman Laura Unger told Congress that an agency survey showed that many analysts profited in recent years by owning stocks of companies they also recommended to investors.
Meeker is not the first high-profile analyst to be named in a complaint by disgruntled investors. Earlier this year, Internet analyst Henry Blodget of Merrill Lynch & Co. was named in a $10.8-million arbitration case filed with the New York Stock Exchange. Merrill Lynch last month paid $400,000 to settle the allegations.
Merrill Lynch said it settled the case to avoid further legal costs, but experts warned the settlement could encourage other investors in collapsed Internet stocks to file arbitrations or lawsuits seeking damages.
Law firm Schiffrin & Barroway, based in Bala Cynwyd, Pa., filed the suits against Meeker and Morgan Stanley on behalf of people who bought EBay or Amazon.com shares from Aug. 1, 1998, to Jan. 22 of this year.
The suits, which seek class-action status, were filed in federal court in Manhattan. They allege that Meeker crossed over the “Chinese wall,” referring to the barrier that is supposed to exist between brokerage research departments and the firms’ investment-banking operations.
Morgan Stanley said it had not seen the suits but that it believes the claims are without merit.
Wall Street critics say analysts have increasingly come under pressure to publish favorable research reports on companies so their firms can get lucrative investment-banking jobs, such as underwriting stock offerings.
Analysts have a “natural incentive” to put a lid on negative research that might anger companies and hurt future banking business, Unger has said.
In the SEC report that Unger detailed Tuesday, investigators found that 28% of analysts surveyed at nine unnamed brokerages invested in companies before they went public and recommended those shares afterward. The agency also found that at least three of those analysts were selling shares they owned even while they were advising clients to buy the stock.
“It is possible that the analysts violated not only firm policies but also securities laws,” Unger said after her testimony, leaving the door open for SEC enforcement action.
The suits filed against Meeker and Morgan Stanley allege the analyst put out recommendations and positive comments on EBay and Amazon “not based on objective analyses, but rather on her desire to attract and retain” the companies as Morgan Stanley banking clients.
The suits also claim that Meeker’s compensation was directly tied to the amount of investment-banking deals she brought in for Morgan.
Major Wall Street firms agreed in June to a set of analyst “best-practices” guidelines in an effort to minimize public concerns about conflicts of interest.
The guidelines included prohibiting firms from tying analyst compensation directly to investment-banking deals and preventing analysts from reporting to investment-banking departments.
