Merrill Lynch Ordered to Reform After Accusations ...
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Monday April 8, 10:41 pm Eastern Time
Associated Press
Judge Orders Merrill Lynch to Reform
By SAMUEL MAULL
Associated Press Writer
Merrill Lynch Ordered to Reform After Accusations of Knowingly Giving Advice That Hurt Clients
NEW YORK (AP) -- Merrill Lynch & Co. Inc., one of the nation's oldest and largest investment firms,
was ordered on Monday to reform its business practices after being accused of giving advice that
hurt clients but enriched the company.
State Attorney General Eliot Spitzer said he got a court order after a 10-month investigation showed
that Merrill Lynch's employees lied to clients and recommended stocks that they knew they were
probably bad investments.
"This was a shocking betrayal of trust by one of Wall Street's most trusted names," Spitzer said.
"This case must be a catalyst for reform throughout the entire industry."
Merrill Lynch said in a statement that there is "no basis for the allegations made today by the
New York attorney general."
"His conclusions are just plain wrong," the statement said. "We believe these allegations are
baseless, and we will defend ourselves vigorously."
Spitzer said he did not know how much money customers lost because of the 112-year-old firm's
practices, but he said he believes the clients "number in the hundreds of thousands, if not millions."
Merrill Lynch's Web site says it has 900 offices in 43 countries and controls more than $1.5 trillion
in customer assets. It says it manages the assets of 3 percent of American households.
Merrill Lynch pushed certain companies' stock, even after it got poor ratings from its own research
analysts, because the firm wanted to keep the companies' lucrative contracts for investment banking
services, Spitzer said.
Investors use the analysts' research information and ratings system to make their investment decisions.
Spitzer said investigators obtained many memos and e-mails that showed that analysts, whose
research was supposed to be independent and objective, were in effect acting as salesmen for client
companies.
This was because the pay for analysts was based in large part on their contributions to bringing in
investment banking business, the attorney general said. He said this was contrary to Merrill Lynch's
own written policy.
Spitzer said the fraudulent practices permeated all of Merrill Lynch.
"These were not isolated incidents," he said. "No one in senior management took steps to fix the problem."
On Monday, state Supreme Court Justice Martin Schoenfeld signed an order that requires Merrill Lynch
to disclose to customers its relationship with investment banking clients and to explain its stock ratings.
The order takes effect Thursday.
Spitzer called the order an "interim" step. He said the investigation is continuing into several other companies
and could lead to criminal charges.
Merrill Lynch said in its statement, issued by spokesman Timothy Cobb, that it was "confident that a fair
review of the facts will show that Merrill Lynch has conducted its research with independence and integrity."
"We have been a leader in practices to assure the independence of our highly regarded research group,"
the statement said.
Shares of Merrill Lynch were down 45 cents to close at $53.45 in trading Monday on the New York Stock
Exchange, before falling another 10 cents in extended trading.
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