Merrill Head Apology For Analysts' E-mailApr 26, 2002 | UPI Merrill Lynch and Co.'s chief executive officer offered an apology to shareholders Friday during Merrill's annual meeting amid ongoing investigations into the company's stock rating policies.
The investment bank, which is America's largest brokerage, has been under investigation by the New York attorney general's office over questions of whether analysts issued favorable research on stocks that the investment side of the firm was currently working with or attempting to work with as clients. At issue is whether recommendations of certain stocks were unduly affected by the firm's investment banking business.
Central to the investigation launched by N.Y. state Attorney General Eliot Spitzer's office is Merrill Lynch e-mail from analysts, during the stock boom of 1999 and 2000, which derided certain stocks that the company was recommending at that time.
Merrill Chairman and CEO David Komansky apologized for the e-mail, which may have negatively affected the company's credibility.
"The e-mail that have come to light are very distressing and disappointing to us. They fall far short of our professional standards, and some are inconsistent with our policies," said Komansky. "We regret that, and we further regret that the perception of our research integrity has clearly been affected.
"We have failed to live up to the high standards that are our tradition, and I want to take this opportunity to publicly apologize to our clients, our shareholders and our employees," the Merrill head added.
However, Komansky also said the company continued to believe "strongly" in the integrity of its research.
The investigation by New York looked at thousands of company documents and e-mail, which had been subpoenaed from Merrill Lynch analysts.
A further inquiry will be conducted by the Security and Exchange Commission, the New York Stock Exchange, the National Association of Securities Dealers, Spitzer, the North American Securities Administrators Association and several states, according to a statement released Thursday by the SEC and Spitzer.
"This was a shocking betrayal of trust by one of Wall Street's most trusted names," Spitzer said. "The case must be a catalyst for reform throughout the entire industry."
In particular, New York's attorney general has raised questions about the relationship between Merrill's high-profile Internet and dot-com analyst Henry Blodget and Merrill's investment banking business.
Merrill has agreed to increase its disclosure to investors about potential conflicts of interest that might exist regarding its stock research reports, as part of a settlement of a recent court order from the state of New York. The brokerage remains in talks with Spitzer's office on other outstanding issues, including the payment of a potential fine.