By Christopher Grimes in New York
FINANCIAL TIMES
Published: March 2 2001 20:14GMT | Last Updated: March 2 2001 22:46GMT
A New York doctor has filed a lawsuit against Merrill Lynch and some of its employees, including internet analyst
Henry Blodget, claiming he was misled by recommendations on two stocks, InfoSpace and JDS Uniphase.
The suit seeks $10m in punitive damages for Debases Kanjilal, a 46-year-old pediatrician, and could be the first to
name Wall Street analysts and brokers over stock recommendations.
But it may not be the last, given the backlash against analysts in the wake of the internet sector's decline. Mr
Kanjilal's attorney, Jacob Zamansky, said he hoped to use the case as a "blueprint" for similar suits against other
analysts.
"The analysts pumped up this tech bubble and left investors holding the bag," Mr Zamansky said. "I would expect
to see more suits of this nature."
Merrill Lynch said it believed the claim was "without merit" and that the firm stood behind its stock research.
"These were unsolicited orders and the clients were treated as they wanted to be treated, and that was as
sophisticated [investors]," a Merrill spokesman said.
In naming Mr Blodget so prominently throughout the claim, the suit is taking on one of the analysts most closely
identified with internet stocks.
The suit alleges that Mr Kanjilal suffered "losses as a result of systematic fraud by stock analysts which occurs on
an industry-wide basis".
It also claims that Mr Blodget failed to disclose that Merrill was doing investment banking work for Go2Net, which
was in talks to acquire InfoSpace. "Merrill Lynch stood to lose its huge investment banking fees if InfoSpace's
stock price fell before the deal closed - a material fact which was never disclosed."
Merrill said its clients were well informed of the risks involved in purchasing internet stocks. Merrill uses an
alphabetic rating system, with A signifying the lowest risk and D signifying the highest risk.
"Virtually all of Henry Blodget's internet recommendations have carried a D, the highest risk rating," a Merrill
spokesman said. "Henry Blodget was on record two years ago saying that 75 per cent of all internet stocks would
fail and cautioning that only a small portion of portfolios consist of high-risk internet stocks."
Mr Blodget, who was travelling and did not return a call for comment, has stated in the past that he should have
downgraded some internet stocks sooner. Merrill says it stands behind Mr Blodget's research.
The suit claims that Mr Kanjilal based his investments in part on recommendations from a Merrill Lynch broker,
Michael Healy, who is also named in the lawsuit. |
