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Judge Skeptical of Investors Suing Merrill

Judge Skeptical of Investors Suing Merrill

Attorneys at Merrill Lynch asked a federal judge in New York to throw out a suit representing thousands who lost money in the Internet bubble, and the firm’s pleas appear to be finding a receptive ear.

The suit alleges that Merrill misled investors by issuing equity research tainted by the firm’s investment banking interests. But Judge Milton Pollack, the Southern District of New York jurist hearing the case, is skeptical of the suit’s allegations, according to commentary in a Prudential daily research briefing.

That commentary, written by analyst David Trone, says Judge Pollack believes most of the people bringing these suits are professional speculators and not true mom-and-pop investors. As such, their claims of naivete on matters relating to the conflicts of interest do not ring true.

The suit, if successful, would buoy like-minded actions against other firms. But Trone says he and many others expect the opposite to happen: "Most of these claims will be dismissed, triggering a withdrawal of cases against other firms."

The Merrill suit was filed after the firm agreed to pay $100 million to settle allegations that it altered its equities research opinions as part of an effort to secure lucrative investment banking relationships.

Ten other Wall Street firms settled similar charges from the office of New York Attorney General Eliot Spitzer, to the tune of $1.4 billion. Spitzer subsequently made the evidence of his case against the firms available to the general public, touching off a wave of investor lawsuits.

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