AG's Merrill Probe Catches Eye Of Plaintiffs' Lawyers
By Cheryl Winokur Munk and Colleen DeBaise
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Armed with the findings of the New York state attorney general's probe into research practices at Merrill Lynch & Co . (MER), plaintiffs' attorneys are preparing to launch an attack of their own.
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Plaintiffs' attorneys, who make their living suing the likes of Merrill and other Wall Street firms, say they expect to see more arbitrations and class action lawsuits filed as a result of the AG's investigation. Details of the probe were made public Monday, and included some very denigrating and graphic e- mails, which prove Merrill's culpability, said Attorney General Eliot Spitzer.
This will "absolutely give rise to an increase in arbitrations" and class actions, said David E. Robbins, a New York securities lawyer. "Whether they'll win is another point."
On Monday, Spitzer won a court order forcing Merrill to overhaul its research on companies that are also investment banking clients. Merrill originally got a three-day stay on the implementation of those changes, but the deadline has since been pushed back to April 19 .
Merrill denies that it acted inappropriately and says the e-mails are taken out of context. In those e-mails, analysts refer to certain stocks as "junk" and "crap," among other terms.
While a public relations nightmare for Merrill, the AG's probe could be a smoking gun for plaintiffs' lawyers.
"Plaintiff attorneys are opening the champagne over this one," said Richard Ryder, publisher of the Securities Arbitration Commentator.
But those seeking to sue Wall Street firms could have a rough road ahead. In the past year, a number of lawsuits accusing analysts of having conflicts of interest have been dismissed.
In a notable instance last August, a federal judge in Manhattan dismissed investor litigation against Morgan Stanley (MWD) and its star Internet analyst, Mary Meeker, only three weeks after it was filed.
U.S. District Judge Milton Pollack in Manhattan said the shareholder suits, which accused Meeker of issuing overly optimistic stock calls during the tech stock bull market, were an example of "abusive litigation."
He said the suits contained "a collection of market gossip" that was " hopelessly redundant, argumentative...and to say the least in grossly bad taste."
The investors had hoped to link their trading losses to Meeker's research and sought class-action damages. At the time, legal experts said investors would have trouble showing that they made investment decisions solely on Meeker's recommendations. Other critics said investors were simply seeking to place the blame for their own bad decisions on deep-pocketed culprits.
Although those suits failed, securities lawyers said it wouldn't be a deterrent to new ones. "If lawyers were gun shy because they lost a case, they'd be no good to themselves or their clients," said Fred Isquith, an attorney with Wolf Haldenstein Adler Freeman & Herz LLP, which was one of the firms that pursued litigation against Meeker.
"Now you can waive around the attorney general's report and say, by the way, the attorney general thinks I'm right, which doesn't hurt," said Jeffrey Haas, a professor of securities law at New York Law School.
Haas said some investors may hope to use the AG's findings to allege violations of New York state common law fraud. In contrast, in the Meeker case, the investors alleged violations of federal securities law.
But even with the AG's report, plaintiffs could have trouble showing that they relied on Merrill's research to make market decisions, he said.
"When you sue, as the plaintiff you have the burden of proof," Haas said. " You're going to have to show that you were aware of these research reports, that you read these research reports, and they caused you to invest." |
