Word: blodgetting
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Such was the climate that led to the now famous e-mails written in 1999 and 2000 by Henry Blodget and other Merrill Lynch analysts privately calling stocks "a piece of junk" or "crap" or "a dog," while advising clients to buy them. The e-mails, subpoenaed and made public last month by New York State attorney general Eliot Spitzer, have created an uproar among investors who feel they have been defrauded by brokerage firms whom they had trusted--and often paid--for honest advice. The Securities and Exchange Commission last week approved new rules meant to moderate the collaboration...
...memo, Merrill's Blodget outlined a weekly schedule that had him spending 85% of his time on banking and 15% on stock research. Many analysts had investment-banking bonuses written into their contracts. In an interview with FORTUNE last year, Mary Meeker, the analyst at Morgan Stanley who was dubbed "queen of the Net" for her connections in Silicon Valley, spoke freely of her interest in IPOs and investment banking. A 1999 Wall Street Journal article reported that star technology banker Frank Quattrone at Credit Suisse First Boston enjoyed "unusual autonomy," which included tech analysts' reporting directly to him. CSFB...
Spitzer has discovered that Blodget, who remained publicly optimistic about Internet stocks, nevertheless harbored significant private doubts about the companies he was touting. InfoSpace, a company that retained Merrill Lynch as its banker, received a favorable rating from Blodget even as its stock fell from a high of $80 in early 2000 to under $13 by the end of that year. In e-mails uncovered by Spitzer, Blodget describes the company as a “powder keg” and a “piece of junk,” expressing serious doubts about the company?...
...Blodget is “retired” from Merrill, which realized that his continued presence at the firm was an invitation to class action lawsuits. Blodget’s case illustrates the power of greed to erode the barriers of self-interest that are supposed to police capitalism. When bankers and research analysts work at the same firm, the fee-generating bankers put enormous pressure on the research analysts to issue favorable ratings. They know companies that receive less than stellar ratings from an analyst will not take their banking business to that analyst’s firm...
...case for Wall Street analysts and bankers, since those firms are less exposed and can always cry caveat emptor, effectively saying that investors must take responsibility for their own losses. On that note, they have a point, but the presumed skepticism of his readers does not excuse Blodget of fraud in publicly praising stocks that he privately felt unworthy. Whatever the outcome of the ongoing investigations, the reforms that they are likely to generate will be far better for the public than any of the blocked mergers were during the Clinton administration. Breaking up companies whose divisions have divergent self...