The analyst, who earlier this year escaped litigation in an arbitration case filed by a Merrill Lynch client, is now under investigation by the New York state attorney general’s office, according to sources cited in The Wall Street Journal. The investigation is part of an overall inquiry into stock analysts’ conflict of interest, the Journal said.
Scott Brown, spokesman for the state attorney general’s office, declined to comment on specifics of the investigation, including whether or not Blodget was being investigated and how many analysts and securities firms are under scrutiny.
Brown did say that the investigation has been going on since June and is being made under the Martin Act–a New York state law that allows securities professionals to be charged with criminal or securities-related fraud.
“It’s into the whole question of conflicts of interest the analysts may have when making recommendations to clients,” Brown said. He also said that any analyst’s departure from his or her position would be immaterial to the investigation.
Blodget announced his departure from Merrill Lynch in November and accepted a severance package speculated at anywhere from $2 million to $5 million. He is scheduled to leave the company at the end of the year. Merrill Lynch did not return calls for comment.
Under the Martin act, the evidence required to prove fraud may be different than that required under federal securities law enforced by the Securities and Exchange Commission.
Blodget had an arbitration case filed against him earlier this year by Debases Kanjilal, a Merrill Lynch client who lost around $500,000 on InfoSpace shares. Blodget had maintained a “buy” recommendation and a $100 price target on shares in the Internet company, which now trade around $2 a share. Merrill Lynch settled the matter out of court by paying Kanjilal $400,000.
Blodget, who first attained fame by predicting that Amazon.com’s stock would hit $400 per share, has also clashed with his employer, which has asked him to refrain from making investment advice beyond his written reports.
Tech analysts have been drawing scrutiny from investors as technology stocks have crashed.
This summer Congress inquired into analysts’ practices. The House Subcommittee on Capital Markets investigated whether investors get unbiased information from Wall Street.