Investors Suing Merrill, Blodget Try To Make Use of Spitzer's Allegations
By JERRY MARKON
Staff Reporter of THE WALL STREET JOURNAL
New York Attorney General Eliot Spitzer's investigation of Merrill Lynch & Co. research practices is spilling over into the civil arena, with plaintiffs' lawyers seeking to use his findings to bolster their contentions that the firm misled investors.
Investors who sued Merrill and former star analyst Henry Blodget last week asked a federal judge in Manhattan for permission to amend their complaint to include Mr. Spitzer's allegations that Merrill hyped stocks about which its own analysts harbored doubts in an effort to win lucrative investment banking work.
In announcing the findings of a 10-month investigation into the firm's research process last week, Mr. Spitzer also released e-mails from certain Merrill Lynch officials, including Mr. Blodget, showing their doubts about stocks that got bullish investment ratings from the firm. The probe is one of several scrutinizing the research practices of a variety of Wall Street firms.
Mr. Spitzer's office is now in preliminary talks with Merrill about a settlement that, if it includes the acknowledgment of wrongdoing he is seeking, could help the plaintiffs' case.
Merrill Lynch has denied the allegations and said many of the e-mails released by Mr. Spitzer contained comments taken out of context. Even if the new information is allowed into the lawsuit, "we believe this case has no merit and we intend to defend vigorously against it," said Tim Cobb, a Merrill spokesman.
But the e-mails set off a firestorm of bad publicity for the firm, as well as a flurry of activity by plaintiffs' lawyers. "It appears to be very, very powerful information supporting our case," said Steven J. Toll, managing partner of Cohen, Milstein, Hausfeld & Toll. The Washington firm is co-lead counsel for five plaintiffs who sued Merrill and Mr. Blodget in July, alleging that they violated federal securities laws by pumping up the stock of InfoSpace Inc.
Mr. Toll said the lawyers, who are now seeking to have the case certified as a class action on behalf of investors who bought InfoSpace shares, will "very likely" try to expand the case to include holders of other Internet stocks recommended by Merrill.
Legal specialists said the immediate benefit for the plaintiffs is that the Spitzer material is likely to help them survive a pending motion to dismiss, a key hurdle in any shareholder action. As the case proceeds, they said the lawyers will be able to seek in the pretrial fact-finding process, known as discovery, the same e-mails and other documents obtained by Mr. Spitzer. "This is the kind of gift from heaven that very few plaintiffs' lawyers receive: specific hard evidence that shows analysts' contradicting their own public statements," said John Coffee, a securities and corporate-litigation specialist at Columbia University Law School.
The judge overseeing the case agreed on Friday to hold a conference with lawyers for both sides on whether the plaintiffs can amend their suit.
The lawsuit, filed July 26 in federal district court in Manhattan, was one of a spate of cases targeting analysts at major Wall Street firms and their research practices. By and large, the cases have been thrown out. One Manhattan federal judge, Milton Pollack, last summer dismissed several suits against Morgan Stanley's Mary Meeker. |
