Merrill Lynch Lawsuits

Merrill Lynch is a retail/wholesale financial supermarket. It offers financial services for private, institutional, and government clients, including mutual fund, insurance, annuity, trust, and clearing services, in addition to traditional investment banking and brokerage services. Following a firestorm of bad publicity over alleged biased research, investigations into fraudulent energy trades with Enron, and a role in the ImClone insider trading.

Make no mistake: Merrill Lynch is huge. In 2003 it had over 48,000 employees and earned almost $4 billion in profits, up 58.7% from the previous year. The "scandals" may have hurt Merrill's clients, but they haven't done significant damage to this brokerage firm.

They are making more money than ever. From their October 2004 press release:

Net earnings for the first nine months were $3.3 billion, 24% higher than the year-ago period, on net revenues that grew 8%, to $16.2 billion. These are record nine months earnings for Merrill Lynch. The pre-tax profit margin was 26.5%, over two percentage points higher than the 24.3% achieved in the first nine months of 2003. Year-to-date 2004 annualized return on equity was 14.6%, up from 13.7% in the prior-year period.

Complaints by investors against Merrill Lynch stockbrokers and other investment advisors fall into four basic categories. The most common claims that we see are:

  • Overconcentration
  • Misrepresentation of Investments
  • Unsuitable Investments
  • Account Churning

Contact us if you believe Merrill Lynch has taken advantage of you.

Some of the stocks that Merrill Lynch pushed its clients to buy:

  • Infospace
  • Webvan
  • Looksmart
  • Overture
  • Goto
  • iVillage
  • MyPoints
  • Aether Systems
  • Quokka
  • LifeMinders
Merrill Lynch Settles Analyst Charges for $100 million

Excerpts from News Articles on Merrill Lynch and Henry Blodget (May 9 through May 22, 2002):

New York state Attorney General Eliot Spitzer has dropped the idea of asking Merrill Lynch to contribute to a restitution fund for investors who lost money on what he says were excessively bullish recommendations by the firm's analysts.

Spitzer said Wednesday that investors had a better chance of recovering money through private lawsuits.

Spitzer released e-mails last month in which Merrill Lynch analysts derided stocks that the firm publicly recommended. Lawyers for shareholders have embraced that evidence. As part of a settlement with the New York Attorney General's office, Merrill Lynch will pay $48 million to the state of New York and $52 million to other states as part of the settlement related to "inappropriate communications" found in the first phase of a potentially lengthy investigation of Wall Street analysts' behavior. The company also agreed to implement several changes in how it is organized internally, further separating its investment banking and stock research wings.

The allegations arose from analyst behavior during and immediately after the incredible rise of Internet and related technology stocks. During the investigation, New York Attorney General Eliot Spitzer revealed e-mails that showed stock analysts privately referred to stocks as "dogs" while publicly maintaining buy ratings.

"It is my view that restitution is best accomplished through private actions that individual investors will bring based on the particular facts of his or her or their investments," he said, according to the Associated Press.

By not acknowledging wrongdoing, Merrill has retained the right to defend itself against a host of private lawsuits filed in connection with the same stock bubble. Some of the pending suits single out former Merrill Internet analyst Henry Blodget.

The settlement comes about a month after a judge cleared the way for further investigation of Merrill Lynch. That ruling followed Spitzer's presentation of 100,000 pages of documents, which he said showed that Merrill analysts were encouraged to give positive stock recommendations to help the company win investment banking and underwriting business.

The allegations focused mainly on dot-com clients, such as Pets.com, Buy.com, eToys, GoTo.com (now known as Overture) and InfoSpace.

Spitzer called the agreement a possible template for reform on Wall Street. But the company did not admit wrongdoing, and some observers suggested that the structural reforms, though stronger than those recently approved by the Securities and Exchange Commission, may fail to eliminate analysts' conflicts of interest.

The attorney general had accused Merrill Lynch researchers, notably former Internet analyst Henry Blodget, of misleading investors by issuing enthusiastic reports on stocks they privately derided so Merrill could win or keep lucrative investment-banking business from those firms.

Last month, Spitzer stunned the financial world by releasing a handful of subpoenaed e-mails in which Blodget and others at Merrill Lynch disparaged stocks the company was publicly recommending, calling them "junk," "crap," "dog" and "disaster."

Spitzer pledged to press ahead with his investigation into analyst behavior at other firms.

The attorney general has subpoenaed at least seven other major Wall Street houses: Morgan Stanley Dean Witter & Co.; Credit Suisse First Boston; the Salomon Smith Barney Inc. unit of Citigroup Inc.; Lehman Brothers Inc.; Bear, Stearns & Co.; UBS Warburg; and J.P. Morgan Chase & Co.

The SEC has opened its own investigation into conflicts of interest on Wall Street. The Justice Department has also expressed interest in probing the issue. Earlier this month, the SEC approved new analyst rules proposed by the New York Stock Exchange and the National Association of Securities Dealers.

In its statement of contrition, Merrill Lynch apologized for "the inappropriate communication brought to light" by Spitzer. But it stopped short of an admission of wrongdoing, an element Spitzer fought for but Merrill rejected, saying that such an admission would leave the firm wide open to the dozens of shareholder lawsuits filed against it.

Related story on Merrill Lynch's relationship with Enron

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