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Personal Finance > Investing
Merrill settles complaint
July 20, 2001: 11:45 a.m. ET

No. 1 broker pays client $400,000 over 'misleading' call by analyst Blodget
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NEW YORK (CNNfn) - Merrill Lynch & Co., the No. 1 U.S. brokerage house, settled a high-profile arbitration case filed by a former client who claimed losses of a half-million dollars from alleged misleading calls made by technology stock analyst Henry Blodget.

Merrill agreed to pay $400,000 to Debases Kanjilal, a 46-year-old pediatrician, who initiated the civil case with the New York Stock Exchange in March.

Kanjilal contended that Blodget maintained a "buy" rating on the wireless and broadband services provider Infospace Inc., despite the stock's decline, with the motive to enable a lucrative financial deal for Merrill.

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Kanjilal said he bought about 4,600 shares of the company and was persuaded by his Merrill broker and Blodget's optimistic recommendation on the stock to keep the shares despite their downward spiral.

"All claims with respect to Henry Blodget as well as Henry Blodget himself were dismissed from this case. We settled to avoid further distraction and expense of protracted litigation," a spokesman for Merrill (MER: up $0.69 to $54.44, Research, Estimates) said.

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Blodget was unavailable for comment,

"The analyst failed to disclose a conflict of interest. The significance of this 'groundbreaking' case is that it establishes the principal that where an investor relies upon an analyst who fails to disclose a conflict of interest, the firm will be held responsible," Kanjilal's attorney, Jacob Zamansky, said.

Merrill's settlement could encourage more legal action by investors who snapped up shares of high-flying technology stocks with aggressive "buy" ratings from analysts, only to be badly burned by the sector turmoil in a bearish market.

"We are now looking at cases against Mary Meeker with Morgan Stanley Dean Witter, for her E-tailer picks Priceline.com (PCLN: down $0.16 to $8.26, Research, Estimates) and Drugstore.com (DSCM: up $0.03 to $0.99, Research, Estimates), and Jack Grubman at Salomon Smith Barney for his pick AT&T Wireless (AWE: down $0.15 to $17.24, Research, Estimates)," Zamasky said.

Earlier this month, Merrill jumped ahead of the brokerage industry watchdogs and rivals on Wall Street by prohibiting its stock research analysts from owning issues that they cover. Merrill's move comes on the heels of growing concerns about the objectivity of analysts' recommendations. graphic

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