A new round of the analyst blame game began Wednesday, when Morgan Stanley analyst Mary Meeker was hit with two lawsuits. Some investors say Meeker “offered biased research and slanted investment advice about eBay and Seattle-based Amazon as a way to secure lucrative banking business for Morgan Stanley,” according to Bloomberg. Amazon and eBay, no strangers to lawsuits, are staying out of this one.
This isn’t the first time analysts have been slammed for being too bullish, possibly at the behest of investment banking clients, like, say, Amazon and eBay. Nor is it the first time we’ve heard that analysts get paid more for drumming up banking business for their firms, this might explain Meeker’s supposed 1999 pay of $15 million. Analysts are under the microscope right now, and Merrill Lynch recently settled arbitration against famous bull Henry Blodget. Unlike the Blodget arbitration, the cases against Meeker and Morgan Stanley are “designed to go to court,” said the New York Daily News. Morgan Stanley dismissed the suits as a publicity stunt, calling them “little more than an attempt to grab headlines by naming a prominent figure as a defendant.”
It may not be a coincidence that these suits were filed the day after a congressional hearing that gave analysts the what-for. The SEC revealed that that 30 percent of analysts owned pre-IPO shares of companies they covered. Plus, “only one of the nine major underwriting firms was able to supply the SEC with a list of analysts who owned pre-IPO shares,” said the Motley Fool. “Several of the analysts who held pre-IPO shares sold them while maintaining their ‘buy’ rating.” Not nice.
Testimony from TheStreet.com’s Adam Lashinsky suggested that financial journalists like himself aided and abetted analysts’ wrongdoing. CNBC always plugged stocks “because rising stocks meant greater viewership,” he said. TheStreet.com pointed out analyst conflicts, Lashinsky said, but “at the same time we did our share to hype the momentum stocks of the era.” For obvious reasons, we don’t expect to see much coverage of this angle. TheStreet.com gets points for publishing the testimony in full.
Another of Lashinsky’s points, the inability of clueless investors to properly analyze the analysts, was supported by a phone survey conducted by investment groups. The AP reported on individual investors’ areas of ignorance, from margin calls to limit orders. “Fewer than one in five investors polled knew there is no insurance to cover stock market losses or losses from investment fraud,” wrote the AP’s Marcy Gordon. “Nearly two in three respondents did not know what to do first when they suspect they are dealing with a problem broker.” Other than filing lawsuits, no one seems to know how to handle problem analysts, either.