Banking & Capital Markets

Merrill to Settle 23 Research Suits

The proposed $164 million settlement would put to rest all but two class actions related to the bank's research coverage of Internet companies.
Dave CookFebruary 21, 2006

Shortly before the long holiday weekend, Merrill Lynch & Co. announced that it had agreed to settle 23 lawsuits stemming from the research of its former Internet analyst Henry Blodget.

The Wall Street firm, which added that it would pay $164 million, also announced that it would take a fourth-quarter charge of $170 million ($102 million after tax), reported Reuters.

The proposed settlement would put to rest all but two class actions related to Merrill’s research coverage of Internet companies. A spokesman for the bank reportedly stated that Merrill expects to prevail in both those actions.

The lawsuits — brought some four years ago on behalf of private investors — stem from the investigation by New York State Attorney General into the sometimes too-cozy relationship between Merrill’s brokers and investment bankers. Spitzer’s probe led to the December 2002 “global settlement” with Wall Street firms, for a total of $1.4 billion. Merrill paid $100 million toward the settlement, without admitting or denying wrongdoing; Blodget paid a fine of $4 million and agreed to a lifetime ban from the industry.

Internal Merrill emails, obtained by Spitzer, had showed that the firm’s analysts often privately disparaged companies but publicly recommended their stocks; often these same companies were investment-banking clients of Merrill as well. As CFO.com reported four years ago, Spitzer uncovered one memo in which a analyst called one company’s stock “a piece of junk”; later that same company received Merrill’s highest stock rating. (Blodget reportedly used much stronger language in abusing some of the companies he covered.)

After being finalized by Merrill and the plaintiffs, the settlements are subject to court approval, Reuters added.