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Citing a host of media reports that he said put the “reasonably intelligent investor” on notice about the perils of the Internet analysis, Southern District Judge Milton Pollack has rejected a motion to reconsider his dismissal of two cases against Merrill Lynch & Co. “The plethora of public information would have required a blind, deaf or indifferent investor to take notice of the purported alleged ‘fraud,’” Pollack said in a 20-page opinion issued Tuesday in In re Merrill Lynch & Co. Inc. Research Reports Securities Litigation, 02 MDL 1484. “Every investor of reasonable intelligence would have been absolutely on inquiry notice.” Pollack had been asked by lawyers for investors in 24/7 Real Media and Interliant Inc. to reconsider his June 30 dismissal of claims that conflicts led Henry Blodgett and other Merrill analysts to hype the stocks they had no business touting. In the June opinion, Pollack said the investors were “high-risk speculators” who were treating the stock market as a “free-wheeling casino” and were now looking to be bailed out for making rash bets. The decision did not bode well for 25 similar suits brought against Merrill for the collapse of other companies’ share price that are still before Pollack. Following the June 30 decision, plaintiffs asked the judge to reconsider the ruling in light of a new argument on the one-year statute of limitations in such cases. Their lawyers asserted that more than one year before the filing of their first complaints, the investors did not have enough information from news reports and public documents to trigger an obligation to inquire further into alleged fraud. The plaintiffs’ lawyers drew the judge’s attention to the July 7 decision by the 2nd U.S. Circuit Court of Appeals in Newman v. Warnaco Group Inc., 02-9157. In Warnaco, the circuit reinstated a class action against the women’s clothing manufacturer after finding that a Form 10-K statement was insufficient to place investors on inquiry notice that there was a possibility of fraud. Pollack disagreed that Warnaco “should alter this Court’s statute of limitations analysis.” “ Warnaco relates to a corporate change in accounting practices, an entirely different set of facts,” he said. Here, “plaintiffs have done nothing to change the unalterable, judicially noticeable facts relating to the widespread public dissemination, years prior to the filing of the cases at bar, of information regarding research analyst conflicts of interest and the service of the investment banking business.” Pollack went on to cite excerpts of 11 news articles published “well before the Internet bubble burst in March and April 2000.” These stories showed that “abundant material was in the public domain regarding the existence of widespread investment banking conflicts of interest and allegedly inflated buy ratings in Wall Street stock research related to new IPOs and technology companies.” And there was no indication that the plaintiffs had read the 44 research reports for 24/7 Real Media and the 34 reports on Interliant, all of which contained disclosures “plainly admitting” that the defendant or its affiliates perform investment banking services for the covered company, he said. “Palpably, plaintiffs, and indeed the whole investment community, were on inquiry notice of the asserted ‘fraud’ well more than one year prior to the filing of the complaints herein, which invoked the one-year statute of limitations terminating these suits,” he said. And, he said, the Warnaco court further made clear that a ” ‘plaintiff in a federal securities case will be deemed to have discovered fraud for purposes of triggering the statute of limitations when a reasonable investor of ordinary intelligence would have discovered the existence of the fraud.’ “ Pollack then denied the plaintiffs leave to amend their complaints. Attorneys with Kaplan Fox & Kilsheimer are plaintiffs’ liaison counsel. Attorneys with Skadden, Arps, Slate, Meagher & Flom represent Merrill Lynch.

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