Merrill Lynch Makes Settlement Offer
Hoping to bring an end to the latest investment industry scandal, Merrill Lynch & Co. on Tuesday made a settlement offer to the New York attorney general, who is accusing the firm’s Internet analysts of making supposedly unbiased public pronouncements that failed to reflect their private scorn for many companies.
Sources said Merrill’s proposal addresses Atty. Gen. Eliot Spitzer’s demands that the firm pay a large fine, accept blame for deceptive practices and make changes to ensure analysts aren’t skewing their findings to drum up lucrative business for Merrill bankers working on stock and bond issues and takeover deals.
The last demand is the trickiest, because Merrill had insisted its analysts and investment bankers benefit mutually from working together, but a Spitzer report that brought the case to public attention last month said the analysts had become “tainted and biased” by association with the investment-banking business.
Sources said Merrill was adamant that any restraints on analyst-banker relationships must be applied equally to the industry. Though that also is Spitzer’s stated goal, it required consultation with the Securities and Exchange Commission on workable standards and complex negotiations on how to guarantee other firms will adopt the standards.
“We’re definitely making progress,” said Spitzer spokesman Juanita Scarlett, noting that a court hearing scheduled for Thursday had been postponed until May 16 to give the two sides more time to negotiate “because we are involved in productive discussions.”
At the hearing, a step toward filing civil or criminal fraud charges, Spitzer is expected to schedule public testimony by Merrill luminaries such as top Internet analyst Henry Blodget.
In an example of a series of e-mails obtained by Spitzer’s office, Blodget referred to the stock of Internet firm InfoSpace Inc. as “a piece of junk” in October 2000, when the Pasadena company was on Merrill’s “Favored 15” list of top stocks.
Merrill contends the communications have been taken out of context, characterizing the often obscene comments as verbal banter of the sort typical not only of investment firms but of, say, police stations or newsrooms.
Merrill Lynch’s stock fell 21 cents to $40.80 Tuesday, bringing its decline to 24% in the month since Spitzer made his allegations.
Spitzer has subpoenaed other securities firms, while the SEC, the National Assn. of Securities Dealers and the New York Stock Exchange also have investigated the analyst conflict issue.
The case against the investment firm is being watched closely by the brokerage industry and private attorneys, who regard Spitzer’s findings as free ammunition for hundreds of claims contending investors were victimized by misleading research and abuses involving initial public offerings.
