NASD Sets Sights On Ex-Merrill Analyst BlodgetJan 4, 2003 | FT.com
The National Association of Securities Dealers has warned Mr Blodget that it likely will file charges against him relating to his research on internet stocks at the height of the bubble.
It is understood the regulator has focused on accusations that Mr Blodget publicly recommended stocks that he disparaged in private, according to a person close to the investigation. In one e-mail already released by regulators, Mr Blodget described as "a piece of shit" a stock that Merrill was publicly recommending to investors.
The move suggests that regulators intend to take action against individual analysts following last month's $1.4bn settlememt with 10 leading Wall Street investment banks over conflict-of-interest charges. As part of that settlement, the investment banks, including Merrill Lynch and Salomon Smith Barney agreed to implement reforms aimed at keeping research as free as possible from conflicts with investment banking operations.
Mr Blodget is the second high-profile stock analyst in recent months to have received a so-called Wells Notice by the NASD, following similar notification to Jack Grubman, the former telecommunications analyst at Citigroup's Salomon Smith Barney investment bank. Mr Grubman has since reached a tentative settlement with regulators to pay a $15m fine and accept a lifetime ban from working in the securities industry.
The Wells Notice informs a member of the securities industry that charges are likely to be filed and gives Mr Blodget the opportunity to respond to regulators. Mr Blodget was served with the notice late last month.
Regulators accused the banks of issuing favourable analyst research or steering allocations of shares in much sought-after initial public offerings to executives to win investment banking work from companies. At the time of that settlement regulators said the focus would move to individuals.
Mr Blodget left Merrill in late 2001 shortly after securities regulators launched their investigation into Wall Street conflicts of interest.
Neither the NASD nor Merrill Lynch returned calls seeking comment.