Merrill execs, analysts may face public grilling
(Reuters 05/15 17:06:35)
By Per Jebsen
NEW YORK, May 15 (Reuters) - Merrill Lynch & Co. <MER.N>
has a court hearing on Thursday that could lead in upcoming
weeks to embarrassing public testimony by its executives and
analysts on why they gave top ratings to Web stocks they
privately derided.
The specter of such testimony would increase pressure on
Merrill to reach a settlement with New York State Attorney
General Eliot Spitzer, analysts have said. In early April,
Spitzer unveiled the interim results of a probe into Merrill's
Internet group, making public damaging e-mails and documents
indicating Merrill analysts touted stocks in order to win
investment banking business.
A sticking point in the negotiations has been the extent to
which Merrill would ensure that its analysts are not beholden
to investment bankers and their clients.
Merrill is anxious to avoid changes that would put it at a
competitive disadvantage relative to other top investment
banks. Merrill also would like to avoid admissions of guilt
that open the door to expensive class-action lawsuits brought
on behalf of investors who were allegedly misled by Merrill's
stock recommendations.
Spitzer's goal is to announce sweeping reforms of Merrill's
research practices that are commensurate with what he considers
to be Merrill's egregious violations of New York securities
laws. Spitzer also is seeking monetary penalties.
While Merrill chief executive David Komansky on Tuesday
said that he was optimistic a settlement will be reached,
Spitzer said on Sunday that the two sides remain far apart.
A Merrill spokesman declined to comment on the status of
negotiations between the No. 1 U.S. brokerage and Spitzer. A
spokeswoman for Spitzer's office said the negotiations are
"ongoing."
PROBE EXPANDED
Spitzer has expanded his probe to include other top Wall
Street investment banks, and regulators such as the Securities
and Exchange Commission have also launched investigations of
Wall Street analysts.
The court hearing scheduled for Thursday, which is to take
place before a New York State supreme court justice, was
originally expected to occur on May 9, but on May 7 was pushed
back a week because of productive discussions, a Merrill
spokesman said. Public hearings would occur in June, the
spokesman said.
Critics charge that forcing Merrill executives and analysts
to testify in public would be an unusual tactic for an
investigative agency. Such testimony, in addition to
embarrassing Merrill, would generate favorable headlines for
the publicity-conscious Attorney-General, they assert.
Merrill shares have fallen 21 percent since Spitzer
announced his probe. If settlement negotiations fail, Spitzer
potentially could bring a criminal action against Merrill and
individual executives and analysts. Merrill and Spitzer have
already agreed on beefed-up disclosures of potential conflicts
that are to be included in Merrill research reports.
Any overall settlement between Merrill and Spitzer would be
closely scrutinized by other Wall Street firms as a potential
roadmap for how they may have to respond if Spitzer's expanded
probes uncover further damaging e-mails or documents.
Spitzer has received support from other state securities
regulators. The regulators have formed a 12-state task force,
co-chaired by New York, California, and New Jersey, to bolster
his investigations.
"California is looking for a settlement that we can all be
proud of, including penalties that send a strong message to the
industry and allow for significant public education," said
Andre Pineda, assistant commissioner of the California
Department of Corporations.
"We're confident that Attorney General Spitzer will get
there," he said.
((Per Jebsen, Wall Street Desk, (646) 223-6152))
REUTERS |
