LP,
I know exactly what you're saying, Dan, but my mind keeps going back to the car salesman who literally has nothing bad to say about a vehicle on his lot, goes so far as to promise performance...and berates not only the vehicle, but the buyers too, the moment they're out of earshot. I don't think that's a crime, nor necessarily indicative of deception, nor do I think it's unethical by default, either
In your post, you seem to compare securities analysts to car salesmen to support the argument that what the analysts are doing is neither a crime, deceptive nor unethical. This is not supportable or logical.
In one respect they are similar - both analysts and car salesman are employees of their respective companies. Therefore, in the context of performing their duties, in effect they are the company. Companies are liable for wrongdoing of their employees. Further, companies have some minimal level of liability for the products and services that they sell. For example…
Say you bought a car from a car salesman based on his representations that, “It has a 400HP engine that will last 200,000 miles.” Then you find out that that the engine is from a ’72 Ford Pinto, has 27HP and leaks oil like a sieve. If this happened to you, you’d probably sue the company for fraud. Not the salesman, mind you; you’d sue the company.
Whether the customer purchases (or sells) an instrument based on hearing Merrill's analyst recommendation on TV, reading it in Merrill's newsletter or getting it from his broker, it is still Merrill's (the company's) opinion. Therefore it isn't a personal opinion; it is the company representative’s opinion and part of the service that the customer pays for (by opening an account, trading through their brokers, etc.).
Based on some of the arguments that I’ve seen on this board, if an analyst does the same thing as the car salesman then “The customer should have known better.” Some of the companies (INSP comes to mind) hyped by the analysts had an “engine” that was far worse than they promoted. They actively misled their customers! Lying for the express intent of misleading customers to purchase is fraud, regardless of whether it is an automobile customer or a brokerage customer!
Now here is where it gets really bad… Given that a major reason for having an account with a company like Merrill Lynch is their analysis and recommendations, it has a much higher level of responsibility to their customer than does the car dealership,. I.e., not only should the company’s analyst be reasonably accurate in their statements (at least to the level a car salesman), they have a higher responsibility because the brokerage promotes the fact that the analysts are working for the customer’s benefit. Unlike the car salesman who sits on the company side of the negotiating table, the analyst is being promoted as sitting on the customer’s side of the “negotiating” table. The salesman is working for his company's benefit while the analyst is expected to be working for his customer's benefit.
Several years ago, in my naiveté, I believed what analysts (and accountants) said and wrote. Now, as a cynical daytrader, I believe nothing of what they say. While I’m sure that many are good, honest people, I view the profession as I view pimps and street hustlers – just some scum who are trying to cheat me out of my hard-earned dollars.
Between the accounting scandals and analyst scandals, middle-America is waking up to what more knowledgeable financial industry observers (such as you) have known for a long time. Some of the talking heads on CNBC seem to believe that this will blow over in a few months and it will be back to normal (hustling, pimping, etc.). I’m not so sure. Like Andersen, I think that Merrill could go down for the count. At minimum, there will be more investors who trust themselves rather than their broker. After all, even if they throw a dart at the WSJ stock listings, they might have a better chance of picking a good stock than listening to their broker’s analyst.
Regards,
Dan. |
