Subject:  former Mer rill Lynch analyst who fuelled demand for Internet shares may be charged with fraud. |
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columbo street
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Date Posted: 11:00:28 01/05/03 Sun
Analyst fraud charges loom
06jan03
HENRY Blodget, the former Mer rill Lynch analyst who fuelled demand for Internet shares that later plunged, may be charged with fraud.
Mr Blodget allegedly made public recommendations of stocks that he disparaged in e-mails to colleagues, people familiar with the situation said.
The enforcement staff of NASD, formerly the National Association of Securities Dealers, told Mr Blodget late last month they are preparing a case against him.
Mr Blodget recommended companies such as InfoSpace while privately saying it was a "piece of junk." The stock has lost 93 percent of its value from its peak in 2000.
Mr Blodget, 36, would be the second analyst accused by regulators of research conflicts of interest.
Jack Grubman, formerly of Citigroup, in December reached an agreement to pay $15 million and be barred from the securities industry for life.
While Citigroup and Merrill were part of an industry settlement of regulators' claims that they published biased stock research aimed at winning investment-banking fees, both companies face at least 50 investor lawsuits.
"In all probability we will see Blodget attempt to shift the spotlight off of himself by repeatedly placing the blame on Merrill Lynch upper management," said Christopher Bebel, a securities lawyer with Shepherd, Smith & Bebel PC in Houston, who isn't involved in the case.
The case may allege that Mr Blodget committed securities fraud and violated NASD rules, and that his reports were inappropriately influenced by Merrill's investment bankers.
Mr Blodget, who quit Merrill in November 2001, didn't return calls.
His lawyer, Samuel Winer of Foley & Lardner in Washington, declined to comment.
NASD spokeswoman Nancy Condon declined to comment, as did Merrill spokesman Mark Herr. Merrill, the biggest securities firm by capital, is a passive, minority investor in Bloomberg News parent Bloomberg LP.
NASD, in a so-called Wells notice, notified the analyst of the pending allegation and gave him the chance to refute the claims before the agency took action.
Recipients of Wells notices typically have three to five weeks to respond, though that is negotiable, they said.
The association, which has a membership of 5,400 brokerages and is authorised by federal law to regulate them, has jurisdiction to charge Wall Street employees for two years after they leave the industry.
In April, New York State Attorney General Eliot Spitzer announced an investigation of Merrill Lynch and revealed e-mails from Mr Blodget and other analysts at the firm that showed them privately disparaging companies they publicly recommended.
Merrill agreed in May to pay $100 million to settle the case.
The firm still faces about 150 lawsuits and investigations over its research practices.
In September, NASD sued Citigroup's Salomon Smith Barney unit and former analyst Grubman, alleging they misled investors by recommending Winstar Communications. as the telecommunications company was sliding into bankruptcy.
Citigroup, Salomon's parent, agreed to pay $5 million to settle the case.
The NASD's decision to notify Mr Blodget of possible charges is not surprising, especially in light of the settlement with Grubman, said Stephen Crimmins, a former trial lawyer in the Securities and Exchange Commission's enforcement unit.
In announcing the settlement with investment banks last month, the regulators said individual analysts could still face charges, Mr Crimmins said.
Pay for analysts soared in the 1990s as they helped firms win investment-banking deals during the technology and telecommunications bubble. Salomon's Grubman, for example, made $20 million a year in the late 1990s.
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