Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Merrill Lynch & Co. and New York Attorney General Eliot L. Spitzer buried the hatchet Tuesday, as the brokerage firm agreed to pay a $100 million fine to settle allegations that it misled investors with stock market research. Merrill Lynch also issued a public apology for the conduct of its Internet stock analysts and agreed to implement several new business practices, including establishing a committee to monitor the firm’s stock ratings. The firm, however, did not admit any wrongdoing. Legal experts have speculated that such an admission might have made it more difficult for Merrill Lynch to fend off private civil lawsuits alleging fraud. Of the $100 million, $48 million will be paid to New York state and $52 million to other states. Both payments are “contingent on acceptance of the agreement by all states,” according to a Merrill press release. News reports last week suggested that the North American Securities Administrators Association had authorized Spitzer to negotiate on behalf of all 50 states. “Merrill Lynch has agreed to enact significant and immediate reforms that will further insulate securities research analysts from undue influence from its investment banking division,” Spitzer said in a statement. After a 10-month investigation, Spitzer alleged that Merrill Lynch’s stock analysts praised certain stocks in public while deriding them in private e-mails, chiefly to secure business for the firm’s investment banking division. Merrill Lynch maintained from the beginning that the allegations of Spitzer, who had threatened criminal charges if a settlement was not reached, were unfounded. Tuesday, the firm released a statement apologizing for “inappropriate communications,” saying: “We sincerely regret that there were instances in which certain of our Internet sector research analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch’s published recommendations.” The attorney general’s office described the statement as one of “contrition” for “failing to address conflicts of interest.” The office said Merrill Lynch had agreed to sever all ties between an analyst’s compensation and the firm’s investment banking business. The settlement also requires Merrill Lynch to issue a report when it discontinues research coverage of a company, explaining why the coverage was stopped and whether the brokerage house has received any compensation from the company in the last year. Merrill Lynch said its new Research Recommendations Committee, which will review changes to stock ratings for objectivity and analytical rigor, would be run by a person whose compensation “primarily” depends on the performance of the firm’s recommendations for investors. INVESTOR SUITS A monitor will be appointed to ensure Merrill Lynch’s compliance with the agreement for one year. The monitor is subject to the approval of Spitzer, the attorney general’s office said in its statement. Fred T. Isquith, a partner at New York-based Wolf Haldenstein Adler Freeman & Herz who is representing a group of shareholders suing Merrill Lynch over its research on Internet company At Home, said the fact that the firm did not admit wrongdoing is not a setback for civil litigants. “[Spitzer's investigation] gives our cases more credibility,” Isquith said. “A lot of people sniff at investors as sore losers and lawyers as scrambling after dollars.” Marcel Kahan, a professor of corporate and securities law at New York University School of Law, said that the settlement, along with public perception in light of the Enron Corp. accounting scandal, will lend legitimacy to these types of suits. But, he said, a lot will depend on individual judges. As far as Merrill Lynch’s brokerage clients, who are bound by arbitration, Kahan said that had the firm admitted wrongdoing, those clients could have been certain of a favorable determination with arguments over the amount of an award. But without such an admission, he said, favorable determinations would be more difficult to come by. Kahan added that Merrill Lynch’s settlement could set the terms for further negotiations with other brokerage firms if the attorney general was determined to investigate them aggressively. “It’s more likely to be a ceiling than a floor,” Kahan said of the $100 million fine.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.