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NEW YORK � Merrill Lynch has settled three class actions that claimed it provided misleading analyst research about Internet companies to purchasers of mutual funds. Under the agreement, which was approved Wednesday by Southern District of New York Judge John Keenan, almost 400,000 investors will receive roughly $40 million, about 6.25 percent of the $645 million in damages they originally sought. While the amount the plaintiffs will walk away with is dramatically less than what they had hoped to receive when they commenced the first of the actions in 2002, Keenan, in In re Merrill Lynch & Co., Inc. Research Reports Securities Litigation, 02 MDL 1484, noted that $40 million was “at the higher end of the range of reasonableness of recovery in class actions securities litigation.” He also emphasized that the “overwhelmingly positive reaction of the class” to the proposed settlement weighed heavily in favor of its approval. The development symbolized the beginning of the end of a troublesome chapter for the financial management and advisory company. The suits are among numerous actions brought against Merrill Lynch following an investigation by New York’s then-Attorney General Eliot Spitzer five years ago into an alleged scheme by the company’s research division to publish false or misleading analysis of Internet stocks in order to generate investment banking business. Merrill Lynch reached an agreement with the government over its alleged wrongdoing in 2002. Last week’s settlement was the first to be approved in connection with a string of lawsuits brought against the firm relating to purported misconduct by Henry Blodgett, the company’s former star analyst. In his opinion, Keenan said the parties began conducting settlement negotiations in 2005, following a Second Circuit U.S. Court of Appeals decision in a related case, Lentell v. Merrill Lynch, 393 F.3d 161 (2d Cir. 2005).
Last week’s settlement was the first to be approved in connection with a string of lawsuits brought against the firm relating to purported misconduct by Henry Blodgett, the company’s former star analyst.

In that case, the circuit affirmed the district court’s dismissal of claims by direct purchasers of two Internet stocks. The purchasers accused Merrill Lynch of publishing false and misleading research and investment recommendations in order to receive and maintain banking business. But Second Circuit Judge Dennis Jacobs, writing for the court, held that the plaintiffs failed to link Merrill’s report to their losses. Jeffrey Smith, a partner at Wolf Haldenstein Adler Freeman & Herz who represented the mutual fund class plaintiffs in reaching the settlement, said the circuit’s decision was “damaging” to his clients’ case. As for the settlement, he said that even though it was less than what his clients were originally seeking, he was pleased that the amount was “significant.” “Our damages expert calculated that the number could be as high as $645 million,” Smith said. “We were seeking the best we could get. We are happy to have reached a conclusion to this long and difficult case.” Attorneys for the plaintiffs had requested a fee award of $11 million, more than 28 percent of the roughly $40 million settlement fund. But Judge Keenan found that an award of 22.5 percent � or about $9 million � of the settlement award constituted a reasonable fee. “This amount … represents a fee of approximately $959 per hour, a princely rate of pay by any standard,” the judge said. In addition to Smith, the mutual funds class plaintiffs were represented by Arthur Abbey and Jill Abrams of Abbey Spanier Rodd Abrams & Paradis, and by Daniel Krasner, George Peters and Aya Bouchedid of Wolf Haldenstein. Merrill Lynch was represented by Mark Holland and Mary Dulka of Clifford Chance, Jay Kasner and Scott Musoff of Skadden, Arps, Slate, Meagher & Flom, and by Christopher Massey of Bressler Amery & Ross. Beth Bar is a reporter with the New York Law Journal, a Recorder affiliate.

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