Brokerage, Analyst Defrauding Investors. Morgan Stanley Dean Witter & Co. and analyst Mary Meeker were accused in two lawsuits yesterday of defrauding investors in Internet auctioneer eBay Inc. and online retailer Amazon. com Inc.
In complaints filed yesterday in Manhattan federal court, investors charge that 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, the No. 2 retail brokerage after Merrill Lynch & Co.
The lawsuits seek class-action status on behalf of investors in the two companies. The suits seek unspecified financial damages.
“The market is relying on the analysts,” plaintiffs’ lawyer Fred Isquith said in an interview. “Individual small shareholders can’t go out and do the kind of research they do.”
analysts had conflicts of interests
The lawsuits come a day after the acting chairman of the U.S. Securities and Exchange Commission, Laura Unger, told a congressional committee that analysts had conflicts of interests. The SEC is weighing rules that would force analysts to disclose whether they profit from stock recommendations.
A Morgan Stanley spokesman did not immediately return a call seeking comment.
The suits do not name eBay or Amazon.com as parties.
Meeker is one of a group of analysts in technology stocks who gained celebrity status as the Nasdaq Composite Index rallied 460 percent over the five years through March 1, 2000, before losing more than half its value.
After bullish calls on America Online in 1993 and Netscape Communications Corp. in 1995, Meeker was named the third-most-powerful woman in business in October 1999 by Fortune magazine, the suit says.
The lawsuits charge that Meeker’s statements about the two companies were not based on objective analyses. Instead, the suits said, her statements were based on her firm’s desire to attract the companies’ investment banking business.
The suits also say that Meeker’s pay $15 million in 2000, the plaintiffs quoted The New York Observer as saying was tied to the amount of investment banking business she generated for her firm.
These “conflicts of interest” were hidden from investors, the suits say.
Shares in Amazon.com, which traded as high as $106 in December 1999, were up a penny to $12.50 by yesterday’s close. EBay shares fell 95 cents to $61.62.
In recent weeks, similar suits were filed against Merrill Lynch and Citigroup Inc.’s Salomon Smith Barney Inc. unit, alleging that analysts put the firms’ interests ahead of their customers’ interests. The Salomon case names telecommunications analyst Jack Grubman.
Merrill Lynch last month paid $400,000 to settle an arbitration case by a former client who said he was duped by the firm’s Internet research analyst Henry Blodget.
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