Settlement Deal With Merrill Remains Distant, Spitzer Says

New York state Atty. Gen. Eliot Spitzer said Sunday a deal with Merrill Lynch & Co. remained distant, as a number of significant issues must still be resolved in his probe into the company’s overly bullish and biased research.

Spitzer also criticized the Securities and Exchange Commission for implementing “porous” rules last week to force stock analysts to reveal more about their ties to companies they research.

Spitzer last month accused Merrill of issuing biased stock recommendations to investors in order to woo lucrative investment banking business.

The two sides are in settlement discussions, which are being closely monitored by Wall Street.

“We have a long way to go, many substantial issues, where I do not believe they [Merrill] yet understand what they have to do to restore integrity to the marketplace,” Spitzer said in an interview with ABC’s “This Week” program.

In the negotiations, Spitzer said he is insisting that the compensation Merrill analysts receive must be entirely separate from the investment banking business it generates. In Spitzer’s 10-month investigation, Merrill analysts were shown to have privately disparaged shares in Internet firms that they had publicly recommended.

Merrill, which has lost more than $9.5 billion in market value in a little over a month, is hurrying to reach a settlement to prevent a court hearing. A hearing is scheduled for Thursday.

A Merrill spokesman declined to comment.

Spitzer’s office also is sifting through information it gathered from firms including UBS’ UBS Warburg, Morgan Stanley Dean Witter, Goldman Sachs Group Inc., Salomon Smith Barney and Credit Suisse Group’s Credit Suisse First Boston as part of a wider probe.

Spitzer would not say whether he would bring criminal charges against the companies.

“What I have said ... is that we will wait to determine what the evidence shows, whether we can resolve these issues,” he said.

Spitzer also said the SEC’s new rules to curb future abuses were “very inadequate.”

“I think the SEC needs to put in place at a national level the rules that will ensure that the analysts are honest and straightforward and not tainted,” he said.

The SEC rules will limit when and how analysts can issue opinions on stocks, restrict their personal investing activities and force banks to disclose more about their ties to companies they research and those of their analysts.