Merrill Lynch was bullish on investment banking fees. The company, whose corporate icon is a symbol for market optimism, on Monday agreed to pay $200 million to settle charges that it issued bogus stock research to help investment bankers win clients.
In addition to the company’s fines, Merrill Lynch’s one-time star Internet stock analyst Henry Blodget agreed to pay $4 million to settle charges that he issued positive research opinions about companies whose future he doubted. Without admitting or denying the charges, Blodget, who earned $18 million from 1999 to 2001, also agreed to a ban from the securities industry.
As examples of deceptive stock research, regulators allege that Merrill Lynch published positive opinions about two companies, GoTo.com and InfoSpace, that ”failed to reflect its analysts’ privately expressed negative views of those companies, making the reports materially false and misleading.”
Documents show that after Merrill launched coverage of GoTo.com, an institutional investor sent Blodget an e-mail asking, ”What’s so interesting about GoTo except banking fees?” Blodget’s response: ”Nothin’.”
Internal e-mails show that Blodget was concerned about InfoSpace, going so far as to label the stock a ”powder keg.” But Merrill’s published research reflected no such skepticism.
Regulators also allege that Merrill and Blodget published deceptive research about five other companies: 24/7 Media; LifeMinders; Homestore.com; Excite At Home; and the Internet Capital Group.
In September 2000, after giving Internet Capital a favorable rating, Blodget sent an e-mail in which he discussed the company’s prospects: ”This has been a disaster. There really are no ‘operations’ here to fall back on, so there really is no ‘floor’ to the stock. We see nothing that will turn this around near-term.”