Spitzer Drops Demand in Analyst Case
Thu May 9, 4:44 PM ET
By MICHAEL GORMLEY, Associated Press Writer
ALBANY, N.Y. (AP) - New York's attorney general has dropped his demand that Merrill Lynch & Co. create a restitution fund for investors who may have lost money based on rosy stock recommendations by the firm's analysts.
Eliot Spitzer wanted the fund established to compensate millions of investors he says were cheated when some Merrill Lynch analysts gave positive stock ratings to companies they disparaged privately in e-mail correspondence.
In an interview, Spitzer said he now feels investors have better odds of getting money for their losses through lawsuits.
"It is my view that restitution is best accomplished through private actions that individual investors will bring based on the particular facts of his or her or their investments," Spitzer told the Associated Press this week.
Spitzer denied that dropping the idea of a restitution fund was a concession, although his aides have said for weeks that the demand was one of four that Merrill Lynch would have to address to settle the case.
The other demands are an admission of wrongdoing, a fine expected to total tens of millions of dollars and changes in the way Merrill Lynch's analysts interact with its investment bankers.
Merrill Lynch officials didn't immediately return a telephone message left Thursday seeking comment.
Observers said it made sense for Spitzer to drop the restitution idea because doing so could help him win a settlement quickly.
"The attorney general knows full well that defrauded investors are going to be recompensed one way or another whether he sets up a restitution fund or not," said David Kaufmann, a former New York assistant attorney general now in private practice specializing in fraud cases for investors.
Also, Spitzer might want to leave restitution to lawsuits because he might not be able to secure an agreement for a large enough restitution fund, said Columbia Law School professor John Coffee.
"It might be a little embarrassing if claims come in at $60 million and he only has $50 million," Coffee said.
Kaufmann said it will be relatively easy for investors to sue Merrill Lynch because Spitzer has already done much of the research through his investigation.
That includes securing embarrassing e-mails and an apology from Merrill Lynch chief executive David Komanksy, a rarity in corporate America.
Spitzer also said any settlement would mean that Merrill Lynch and its executives would avoid criminal charges.
Negotiations between Merrill Lynch and Spitzer have been under way since April, when Spitzer unveiled the results of his 10-month investigation. The investigation also includes key Merrill Lynch rivals, and any settlement reached is expected to serve as a model for the industry.
Spitzer has subpoenaed information from at least a half dozen other major brokerages. Some of the evidence collected so far includes employment contracts that detail how analysts were to be compensated for helping to land investment banking clients.
"We have a fair bit of information and that is why we are persuaded the issue is not limited to Merrill," Spitzer said. "There is the same tension when analysts are being compensated for deals, inevitably they want to speak favorably about those deals and those clients."
Merrill Lynch shares fell $1.04, or 2.4 percent, Thursday to $42.91 on the New York Stock Exchange |
