This is some of the transparency that Keith has asked for. And the cynicism and duplicity of companies like Merrill Lynch is frightening.
Somewhere there is a quote that goes something like this: "the truth shall make you free, but first it shall make you miserable." anonymous arthur cordell -----Original Message----- From: Bruce Leier [mailto:[EMAIL PROTECTED]] Sent: Tuesday, April 16, 2002 8:52 PM To: Futurework@Scribe. Uwaterloo. Ca Subject: Capitalism at its "best" This seems to be a typical "capitalist" modus operendus, eh? DAN GILLMOR ON TECHNOLOGY E-mail Dan at [EMAIL PROTECTED] _____________________________ Paying fines too lenient for analysts who lied When we look back on the crazy era of the Internet bubble, one of the pivot points may be the day Henry Blodget threatened to tell the whole truth. Blodget was head of the Internet research group at Merrill Lynch, the giant investment bank and brokerage house. His group's glowing recommendations of various stocks helped propel them to dizzy heights, and Merrill Lynch maintained positive recommendations on these companies even after the share prices dove. What at least some investors didn't know, according to a devastating affidavit from New York State authorities, was that Blodget and his cronies served two masters. One of them, the investment banking side of Merrill Lynch, was reaping tens of millions in fees from the tech companies the Merrill ``research'' arm found so attractive. It's been all-too-common knowledge that such conflicts of interest raged on Wall Street and its Silicon Valley outposts during the tech boom of the 1990s. Now, thanks to a public official in New York state, we're finding out just how rampant the dishonesty was. The official is Eliot Spitzer, the state's attorney general, who is doing what federal officials have refused to do. He's holding people accountable for their actions in the rip-offs that enriched a few and cost sucker investors trillions of dollars. Spitzer is wielding a powerful weapon, a state law called the Martin Act. It deals with securities markets, and has tough provisions about fraud and deception. The stock analysts and their activities have proved to be noteworthy fodder. Merrill Lynch denies it all, as you'd expect. Last week, after Spitzer's office released its initial findings, based on under-oath interviews and thousands of documents, the company insisted that it and its employees had done nothing wrong, that everything was being taken out of context. Read the affidavit for yourself. It's posted on the state's site (www.oag.state.ny.us -- look for the Merrill Lynch item under ``Press Releases''). You can find Merrill's reply on the company's site (www.ml.com -- look for the link entitled ``Independence of Merrill Lynch Research''). If you're like me, your blood will boil when you examine the state's document. It quotes liberally from Merrill Lynch internal e-mail, and it paints a seedy portrait. The sheer cynicism of these people is astounding. They're talking about companies that probably never should have been taken public in the first place, calling the stocks vulgar names even as they continue to tell investors to buy the shares. One unofficial internal rating, apparently, was POS, short for piece of . . . . Blodget and his research colleagues were paid based, in part, on what they did for the investment bankers. The affidavit quotes a Blodget memorandum that shows how the so-called ``analysts'' did all kinds of services including pitching the banking clients. The analysts did appear to chafe at their lack of genuine independence. Even Blodget, who achieved rock-star status (and pay to match) during his heyday -- he left Merrill last December -- seemed to have grown tired of the pressure from the banking side of the operation. In late 2000, just a few months before the bubble burst, he had what the affidavit calls a ``moment of candor,'' and offered to lob a bomb into the lucrative works. He threatened to ``start calling the stocks . . . like we see them, no matter what the ancillary consequences are.'' None of this excuses the insatiable greed of investors during the period in question. Merrill and its counterparts in the banking business, many of whom are also under investigation by New York state, are correct to point out that they issued disclaimers in their reports and told investors that tech stocks were inherently risky. That doesn't excuse the conflicts of interest. It doesn't excuse the love-letter stock recommendations on companies that, we learned later, had scant reason to exist. There's another disgrace in what we're learning -- the fact that a state official, not federal law enforcement and regulatory people, is the one leading this pro-investor campaign. Oh, the Securities and Exchange Commission has made a few inquiries into the activities that enriched the few at the expense of the many. The SEC did extract a $100 million settlement from Credit Suisse First Boston for an outrageous kickback scheme where favored clients got public offering shares at the initial price, sold the shares when the stock prices went berserk the first day and then paid huge brokerage fees on the sales. But the SEC and other federal officials have mostly winked at the overall sleaze that prevailed in the markets during the bubble. They've failed, miserably, to do their jobs. One of the more intriguing bits of news from the New York investigation is the hint that felony charges may be on the way. The Martin Act is a criminal statute. I don't know if Blodget or anyone else involved in the 1990s equity fleecing is guilty of any crime. But for those who are found to be lawbreakers in financial scandals of all sorts, jail time, not just fines, is the right punishment. That raises a scary thought. Maybe everything that happened in the market bubble was legal. We're in deep trouble if that's the case, because no rational person would invest in markets as ethically corrupt as the ones we've just witnessed. So, kudos to Spitzer for taking this on. The next few months should be mighty interesting, to say the least. A TIP OF THE HAT Gretchen Morgenson, a financial reporter and columnist for the New York Times, won a Pulitzer Prize last week for her work exposing the Wall Street analysts and their conflicts of interest. It's a well-deserved honor. -----
