DJ Merrill's Lawyers Defend Firm's Research Analysts
(Dow Jones 04/16 08:00:37)
By Judith Burns
Of DOW JONES NEWSWIRES
(This report was originally published late Monday.)
WASHINGTON (Dow Jones)--Merrill Lynch & Co.'s (MER) top lawyers defended the
firm's research analysts Monday, but confirmed that the brokerage company
hopes to settle claims it misled investors with bullish views on Internet
stocks.
In remarks to a meeting of state securities regulators here, Merrill Lynch &
Co. (MER) general counsel Rosemary Berkery disputed findings by New York
Attorney General Eliot Spitzer that Merrill analysts touted stocks they
thought were lousy to generate lucrative investment banking deals.
Berkery said Merrill Lynch analysts have independence and integrity,
reporting directly to the company's president, not investment bankers, to
avoid any conflict of interest.
"The head of investment banking cannot determine what research analysts get
paid," Berkery stressed. She said "it's crazy" to link analysts' base pay
or bonuses to their role in an investment banking deal and that Merrill
doesn't do that.
Spitzer's investigation focused on Merrill's former star analyst Henry
Blodget, who touted Internet companies he appeared to pan in private e-mail
correspondence. Berkery said Blodget tempered his views and told investors
that most of the companies he followed wouldn't last, warning them: "Many
eggs hatch, few turtles make it to the sea."
Merrill Lynch's generally bullish view is hardly surprising, said Berkery.
She said the company's 600 analysts track 3,000 U.S. stocks, concentrating
on those with good prospects since the firm's brokers, financial advisers
and clients "are not interested in hearing about sells."
Berkery embraced proposals to reduce conflicts on Wall Street, noting many
of the proposed solutions are in place at Merrill Lynch already, but
rejected radical ideas such as separating investment banking from stock
research.
"We actually think investors are better served by the current structure,"
Berkery told regulators. She predicted analysts would face stronger
conflicts if brokerage firms spun off research departments, requiring them
to support themselves by charging for individual research reports. Although
Merrill Lynch disputes Spitzer's findings, company attorneys confirmed the
firm hopes to negotiate a settlement and put the controversy behind it.
"We always attempt to work out our differences with government officials and
that's what we're doing here," Merrill Lynch assistant general counsel
Andrew Kandel told reporters.
NASD Regulation, Inc. senior vice president Thomas Selman told regulators
it will take time - and tougher regulation - to rebuild investors' trust in
Wall Street in the wake of the dot-com mania and subsequent bust.
State regulators said they expect reforms to produce better disclosure of
potential conflicts and to change compensation practices at brokerage firms.
Merrill Lynch isn't the only firm that will come under fire for analysts'
conflicts, regulators predicted.
"It's just the tip of the iceberg," Indiana securities commissioner Bradley
Skolnik said in an interview. He thinks plenty of Wall Street analysts
recommended stocks they knew were no good, providing "the economic
equivalent of a pump and dump scheme," that inflates a stock's price so it
can be dumped on unsuspecting investors.
-By Judith Burns, Dow Jones Newswires, 202-862-6692;
judith.burns@dowjones.com |
