Spitzer hopes for Merrill settlement by next week
By Brian Kelleher
NEW YORK, May 16 (Reuters) - New York State Attorney General Eliot Spitzer said on Thursday he hopes reach a settlement with Merrill Lynch & Co. Inc. (NYSE:MER - News) by next week over charges that the brokerage's research misled investors.
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The attorney general, who said he couldn't predict the outcome of the talks, on Wednesday agreed to postpone until next Thursday a court hearing that was scheduled for this morning.
"We have had productive conversations," Spitzer said at a breakfast conference sponsored by Crain's New York Business magazine. "Hopefully in the next week, we will have some sort of closure."
Spitzer on April 8 revealed a number of damning e-mails between Merrill Internet analysts, including former star Henry Blodget, that he uncovered during a 10-month probe of the firm's research. He charged the No. 1 U.S. brokerage with issuing overly bullish and biased research to win investment banking business. The analyst reports misled investors, Spitzer claimed, which could constitute fraud.
He still hasn't ruled out criminal proceedings, saying he would follow the proper legal procedures if the two sides do not reach a settlement, but indicated such an accord is likely.
"The fact I was willing to adjourn the court date suggests there has been forward movement," he said.
Spitzer and Merrill are in talks on a number of points, including a fine and changes to how the firm compensates its analysts. Spitzer declined to discuss specific details of the talks, including a potential fine amount, but did acknowledge the biggest issue is how analysts are paid.
"One of the core tensions ... emerges when analysts are being paid by the investment banking side of the house," he said.
New Securities and Exchange Commission guidelines stipulate that securities firms no longer pay analysts for their work on specific deals. But Spitzer said that practice already wasn't that common.
The larger problem, he said, is that analysts are generally paid from a pool of investment banking revenue, meaning they indirectly benefit from deals.
Spitzer, citing his ability under New York State's Martin Act to regulate the securities industry there, said he had to take the lead role in attacking research practices.
"There was a void, nobody had done anything," he said, noting that he got involved because the SEC and other regulators were inactive.
Spitzer also blasted some government critics -- including Rep. Richard Baker, a Louisiana Republican who spearheaded Congressional hearings on analyst objectivity last year -- who said he is overstepping his bounds.
"They're wrong," he said, adding the analyst hearings were "an absolute bust" as Baker didn't turn up any evidence.
Spitzer has subpoenaed most of Wall Street's biggest firms, including Morgan Stanley (NYSE:MWD - News), Goldman Sachs Group Inc. (NYSE:GS - News), J.P. Morgan Chase & Co. Inc. (NYSE:JPM - News), Credit Suisse First Boston and Salomon Smith Barney, according to sources and government filings. He declined to name any of the firms involved in his wider investigation, but acknowledged his office is gathering information.
"We wanted to see if other firms managed the issue more successfully (than Merrill)," he said.
Merrill shares were up $1.50 or 3.6 percent, at $43.70 in morning New York Stock Exchange trade. |
