This article examines the question of whether major securities’ brokerage firms analysts can be held liable for securities fraud as a result of stock recommendations they make which fail to disclose conflicts of interest and are premised upon the use of baseless “valuation” criteria. The issue is of great importance as the U.S. Congress and securities regulators are currently examining the role and potential liability of stock analysts. As shown below, existing securities law does, in fact, hold analysts liable for misleading statements or failure to disclose conflicts.
The fall of the NASDAQ market (Internet/high technology) stocks from its high of 5,000 in March 2000 to 2,000 in March 2001 has been largely attributed by many financial market observers to false and misleading “buy” recommendations issued by major brokerages’ “superstar” Internet analysts such as Henry Blodget of Merrill Lynch and Mary Meeker of Morgan Stanley.
