Wednesday, February 13, 2008

Merill Lynch

Sometime in 2001, Merrill Lynch was found to have been publicly promoting investments that they had privately damned. It is suspected that these false statements were made to secure investment banking deals with the companies whose stock was being advocated.

One of these clients is believed to be deposed energy leader Enron. In 1998, a sequence of events unfolded in which the Merrill Lynch analyst responsible for the downgrade of Enron’s stock appraisal resigned, the stock was upgraded, and the two struck several deals for lucrative stock offerings.

New York state Attorney General Eliot Spitzer took the lead in investigating Merrill Lynch’s practices, finally reaching a settlement that included a fine and Merrill Lynch promises to correct the scandalous practices.

When did the wrongdoing first come to light?

While allegations against brokers have been aired in congressional hearings and on Wall Street for some time, ground may have been broken on the current Merrill Lynch scandal in July 2001, when the brokerage firm was forced to reimburse approximately $400,000 to a former client. The client, Debases Kanjilal, had invested based upon the advice of his personal broker and analyst Henry Blodget. Kanjilal and his lawyer believed they had evidence that Blodget and Merrill Lynch had some interest in the success of the stock, Infospace, Inc.

The current case against Merrill Lynch began to gather steam in April 2002. At this point, Spitzer made known that he had evidence – in the form of emails and sworn testimony – that analysts had privately emphasized the unattractiveness of stocks publicly characterized as sure things.