NASD Widens Analyst Probe to Include Their SupervisorsJan 6, 2003 | Wall Street Journal
The crackdown on Wall Street stock research could soon take a new turn as securities regulators ramp up pressure not just on the analysts themselves, but on their bosses as well, Monday's Wall Street Journal reported.
The National Association of Securities Dealers, which has informed former Internet analyst Henry Blodget that he could face regulatory charges over his research picks while at Merrill Lynch & Co. , is turning its attention to Mr. Blodget's supervisors as part of its probe into conflicts of interest on Wall Street.
The NASD will soon take testimony from Andrew Melnick, who ran research at Merrill during much of Mr. Blodget's controversial three-year stint there, people close to the matter say. Mr. Blodget, who worked for Merrill from early 1999 until his departure at the end of 2001, came to symbolize the mania around Internet stocks, and later, the conflicts surrounding Wall Street research when many of his picks went bust.
As it moves toward possibly filing a case against Mr. Blodget, the NASD, which provides front-line regulation of the securities business, is also looking at the oversight structure at Merrill, including whether the firm and his bosses maintained tight-enough controls on analyst stock recommendations, these people say. Under NASD rules, brokerage firms are responsible for supervising employees, and in the case of analysts, that supervision ultimately falls on the shoulders of research directors.
So far, Mr. Melnick has received no formal indication from securities regulators that they are considering any action against him, and it isn't clear whether any investigation is focusing solely on his activities. Although Mr. Blodget didn't report directly to Mr. Melnick, as head of research Mr. Melnick had ultimate responsibility for all the people under him.
Mr. Melnick, who left Merrill and in February 2002 became co-head of research at Goldman Sachs Group Inc., declined to comment through a Goldman spokesman. His attorney, Ira Lee Sorkin, said he had no comment on Mr. Melnick's situation, and a Merrill spokesman also had no comment regarding Mr. Melnick or Mr. Raj. The NASD also declined to comment.