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Near the Corner of Church and State

In the wake of New York state's investigation of Merrill Lynch, the SEC issues rules governing analyst independence.
Stephen Taub, | US
May 10, 2002

Is Corporate America's cozy relationship with Wall Street's sell-side analysts about to come to an end?

Possibly. As reported in late April, New York State attorney general Eliot Spitzer's investigation into conflicts of interest at Merrill Lynch is apparently wrapping up. Reportedly, management at the investment bank is close to agreeing on a settlement with Spitzer. Part of the deal: reportedly, Merrill will pay New York State a hefty fine for its actions.

And on Wednesday, the Securities and Exchange Commission approved new rules aimed at addressing conflicts of interest that arise when research analysts recommend the securities of their firm's customers.

The new rules include the following provisions:

Meanwhile, back on the Street: while Merrill Lynch appears to be nearing a settlement with New York state, the bank still faces a lawsuit arising from Spitzer's investigation. It seems some investors are less than thrilled that Merrill analysts allegedly issued buy ratings on certain company stocks—while privately deriding those companies. In addition, it's uncertain whether Spitzer's investigation will end with Merrill Lynch or spread to the rest of the investment-banking community. Even with the SEC's announcement on Wednesday, this controversy is a long way from over.