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Email And Be Damned

Oct 3, 2002 | Mid-Day Mumbai

It may be an innocuous email, but very few people know that the simple message sent on the internet can be more explosive than an atomic bomb.

And the companies that are waking up to this threat are US financial firms that have been at the receiving end of many slanderous emails their staff have sent. Not only have these emails shaken the faith of the investor, but the firms have lost that one valuable asset they thrived on, trust.

As the US government investigates the scandals that have shaken research and banking firms, the one form of communication that is worrying these firms is email exchanges which government investigators will use as critical evidence to build cases that target conflicts of interest at investment banks.

How would you feel if...

In a bid to make analysts careful about the emails they send and how to communicate with investors and clients, Merrill Lynch is schooling its staff in Email Content Training this month.

The effort will focus on risks associated with email correspondence and on ways to avoid statements that could potentially damage the firm.

The course will teach analysts: “Before sending an email or leaving a voice-mail message, ask yourself: ‘How would I feel if this message appeared on the front page of a newspaper, was given to my client, or if I had to explain it in court or to a regulator?’.’’

Merrill has every reason to undertake these courses. It was the first to suffer from analysts internal emails and the firm paid a $100 million fine in May after New York state Attorney-General Eliot Spitzer went public with emails in which Merrill analysts privately derided stocks they recommended publicly.

What’s public and private

Credit Suisse First Boston, the investment banking arm of Credit Suisse Group, is another firm that dreads the spectre of internal emails coming back to drown them.

In one CSFB email, analyst Laura Martin told a colleague to stay positive on AOL Time Warner Inc. in the spirit of ‘‘not pissing off the company.’’

Underscoring the divergence between her public and private stance on the media giant, Martin wrote, ‘‘I would NOT lower numbers on AOL, even though they can’t make them.’’

But why worry so much? Simple: For government officials the email is the most damning piece of evidence that cannot be erased. Papers can be shredded, faxes can fade, but an email message – unless deleted – is the most damning piece of evidence because as one analyst woefully said, ‘‘it’s all retrievable.’’

Among some of those damned

New York: Jack Grubman has been cast as the villain of Wall Street. In a lawsuit filed on Monday, New York state Attorney-General Eliot Spitzer charged the former star telecoms analyst at Salomon Smith Barney with blood-curdling allegations.

Though not naming Grubman as a defendant, the suit detailed alleged conflicts of interest at the brokerage that Spitzer said enriched a few at the expense of many.

In one email the suit quotes, Grubman admitted the bank supported ‘‘pigs’’ in supposedly objective research notes to ensure they granted Salomon investment banking business.

It also quotes former colleagues describing Grubman as an ‘‘overpriced cheerleader’’ and an ‘‘investment bank whore’’. Allowing him to ‘‘represent himself as an analyst is an egregious act by the management of this firm’’ said another.

In another internal email, Grubman said ‘‘Most of our banking clients are going to zero and you know I wanted to downgrade them months ago but got a huge push from banking. I wonder what use bankers are if all they can depend on to get business is analysts who recommend their business clients.’’ Of the 36 companies he covered, 16 went bankrupt but he never issued a single ‘‘sell’’ recommendation.

Grubman is not the only one. Spitzer, who has extracted a $100m settlement from Merrill Lynch for conflicts of interest, warned that he was training his sights on other analysts and other Wall Street firms.

The suit against Merrill contained similar compelling evidence including an email from one-time star internet analyst, Henry Blodget, describing stocks as a ‘‘piece of shit’’ while recommending them to small investors.

Last year Merrill paid $10m to settle claims from a private investor that he had received wrongful advice from Blodget. That same lawyer is now suing Salomon over advice given by Grubman and said he had been contacted by many clients seeking redress against Mary Meeker, the Morgan Stanley analyst dubbed the ‘‘queen of the internet’’.

In his resignation letter Grubman said he felt he had been unfairly singled out. Tellingly, he suggested he was only doing what everyone else was doing. ‘‘I did my work as an analyst within a widely understood framework consistent with industry practice that is now being extensively second-guessed.’’ If that’s the case, look out for more trouble ahead.

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