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Saying that investors who lost money when the Internet stock bubble burst had simply gambled and lost, a federal judge Tuesday dismissed two class actions that accused Merrill Lynch of inflating stock prices with bogus research reports. Southern District Senior Judge Milton Pollack made his disdain for the suits clear, calling the plaintiffs “high-risk speculators” who lost their money “fair and square” during a game of “high-stakes wheel of fortune” and now “hope to twist the federal securities laws into a scheme of cost-free speculators’ insurance.” “Plaintiffs would have this Court conclude that the federal securities laws were meant to underwrite, subsidize, and encourage their rash speculation in joining a freewheeling casino that lured thousands obsessed with the fantasy of Olympian riches, but which delivered such riches to only a scant handful of lucky winners,” the judge wrote in In Re Merrill Lynch & Co. Inc., 02 Civ. 3210. The suits, brought by two classes of plaintiffs who invested in Internet companies 24/7 Media and Interliant, alleged that Merrill Lynch — and particularly recently banned analyst Henry Blodget — had pumped up the companies’ stocks to secure investment banking business from them. The suits were inspired by the investigation into Merrill starting last April by Attorney General Eliot L. Spitzer, who made public e-mails in which Blodget privately described as “crap” and “junk” stocks that he promoted publicly. Spitzer’s investigation into Merrill’s practices led to a $1.4 billion settlement between 10 banks, including Merrill, and the Securities and Exchange Commission, but Judge Pollack likened accusations that Merrill had caused losses for investors to sour grapes. “Had plaintiffs themselves won the game instead of losing, they would have owed not a single penny of their winnings to those they left to hold the bag (or to defendants),” the judge wrote. Judge Pollack criticized the plaintiffs for relying almost exclusively on the e-mails in Spitzer’s report — which he described as “freewheeling” — and their “semantic invention” of a stock market manipulation engineered by Wall Street bankers. The plaintiffs failed to illustrate specific actions by Merrill that caused losses, the judge said, and he noted that Merrill’s reports contained extensive data and research beyond a stock rating that plaintiffs could have examined. Judge Pollack contrasted these two suits with similar litigation, also in the Southern District, against WorldCom. That litigation, the judge said, alleges that accounting irregularities were concealed and led to losses by the plaintiffs. At one point, the judge expressed anger that the plaintiffs had not alleged anything particular beyond what was turned up by Spitzer’s investigation. He said he had considered dismissing the claims outright, with leave to re-plead, but instead, giving “plaintiffs every benefit of any doubt,” decided to “shoulder … the burden of threshing all of the chaff in search of any kernels that might emerge from the complaints.” OTHER CLASS ACTIONS Judge Pollack is presiding over 25 other class actions against Merrill, each pertaining to different companies whose stock prices were wiped out. He said in a footnote that he would determine “at the appropriate time” whether his ruling in these two suits applies to the other 25. In a similar suit before Southern District Judge Harold Baer, Judge Baer Tuesday affirmed his earlier dismissal of securities class action against Goldman, Sachs & Co., Credit Suisse First Boston, and Morgan Stanley Dean Witter. Judge Baer said the suit failed to say why stock recommendations were fraudulent or misleading. The plaintiffs in the Merrill suits are represented by Frederic S. Fox of Kaplan Fox & Kilsheimer, and Cohen, Milstein, Hausfeld & Toll in Washington, D.C. The attorneys could not be reached for comment. Merrill was represented by Jay B. Kasner of Skadden, Arps, Slate, Meager & Flom. He could not be reached for comment. A spokeswoman for Spitzer declined to comment before press time.

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