It was a victory in court yesterday for Merrill Lynch and three other large investment banks--Morgan Stanley, Credit Suisse First Boston, and Goldman Sach--as judges dismissed claims in two class action suits related to the firms' tainted stock research. The suits charged that the firms intended to defraud investors by touting certain Internet and telecommunications stocks.
In New York, Judge Milton Pollack dismissed a class-action claim charging that Merrill Lynch intended to bilk investors through misleading research from Internet analyst Henry Blodget. (Blodget resigned from Merrill Lynch in 2001.) The cases were specifically related to recommendations Blodget made on 24/7 Real Media and Interliant. In his ruling, Judge Pollack said the investors involved were largely "high-risk speculators," and that the research reports contained significant disclosure suggesting that the stocks in question were volatile.
Though research practices at many of the brokerage firms have been exposed as illegal, individual suits against the firms are far from slam-dunk affairs. Numerous cases against Morgan Stanley Internet analyst Mary Meeker have been dismissed, as well as many cases against Blodget. (One case, a $400,000 suit against Blodget, was successful a couple of years ago.)
David Trone, a Prudential analyst who follows the brokerage industry, says he expects yesterday's decision to have a chilling effect on similar suits. "We fully expect the other stock claims against Merrill to be withdrawn," Trone says. "While other areas of litigation have at least some legitimacy, we believe research misrepresentation claims were more conspiracy theory than intelligent fact-based claims."
In December, a probe into Wall Street's research practices culminated in the levying on $1.4 billion in fines for the involved firms. Merrill shouldered $100 million of that figure.