Merrill Will Pay $100 Million Fine To Settle New York's Analyst Probe
Firm Also Agrees to Change Oversight of Research;
Spitzer to Shift Attention to Other Wall Street Firms
By Charles GasparinoStaff Reporter of The Wall Street Journal
May 22, 2002 5:47 pm ET
Merrill Lynch & Co. agreed to pay $100 million and change how it monitors and pays its stock analysts, to settle a New York state probe of allegations that the nation's largest brokerage firm gave investors overly rosy research reports about the stock of its investment-banking clients.
But Wall Street's analyst woes are far from over. Now the New York attorney general, Eliot Spitzer, will turn his attention to Merrill's rivals in his burgeoning investigation of Wall Street's research practices. Mr. Spitzer's goal is to use the Merrill settlement as a "template" to wring similar changes and fines from the rest of the industry, especially firms such as the Salomon Smith Barney unit of Citigroup Inc. and Morgan Stanley & Co. that cater to individual investors.
Many investors who lost money when the technology-stock bubble burst in 2000 say they relied on the bullish calls of Wall Street analysts during the late-1990s boom. They also say they were left holding the bag when analysts remained positive as stocks plunged.
None of the money in the Merrill settlement will go to investors. But the Merrill concessions, even without an outright statement of wrongdoing by the firm, could aid investors in lawsuits alleging they were misled by the firm's research. Other firms, depending on the resolution of their cases, could also be open to liability.
The settlement also promises to push the Securities and Exchange Commission to aggressively pursue its own investigation of analyst practices. SEC Director of Enforcement Stephen M. Cutler promised Tuesday's settlement "is not the finish line." His agency, Wall Street's top regulator, has been in the unusual position of watching from the sidelines as structural change is forced on a major firm. Competitive pressure on its own may force other firms to match Merrill.
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