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Merrill agrees to disclosure
Broker will disclose banking relationships on Web site, but settlement not completed.
April 18, 2002: 6:45 PM EDT

NEW YORK (CNN/Money) - Merrill Lynch & Co., under fire from the state of New York for allegedly having its analysts issue misleading stock ratings, has agreed to post its investment banking relationships on a Web site.

Merrill said Thursday it has reached an agreement with the New York attorney general and as a first step will disclose, for all companies covered in research reports, any merger and acquisition or underwriting fees it has received or is entitled to receive on the Web by April 24.

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The move satisfies a court order obtained by Attorney General Eliot Spitzer requiring disclosure of possible conflicts of interest between the brokerage's research and banking arms.

By June 3, the company said it will replace the Web disclosure by stating banking fee information in its research reports and include boilerplate language on the reports stating "investors should assume that Merrill Lynch is seeking, or will seek investment banking and other business from the covered company."

Also by June 3, Merrill Lynch will disclose percentages of stocks receiving ratings of "strong buy," "buy," "neutral," or "reduce/sell."

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For example, in a research report on a drug stock, investors will know the percentage of drug companies which receive a "strong buy" rating from Merrill and the percentage of drug companies who have paid fees to Merrill who receive a "strong buy."

Investors will also get a line telling them what percent of all companies covered get a "strong buy" and what percentage of all companies who paid fees to Merrill get a "strong buy."

But no settlement has yet been reached on the most serious issue, the question of whether investors have been defrauded by a lack of disclosure and honest analysis.

Merrill and Spitzer still are negotiating on that and other aspects of the case, including the key areas of restitution and whether Merrill will admit any wrongdoing.

Sources say Merrill and the attorney general's office are hundreds of millions of dollars apart on the question of how much restitution might be required.

A Merrill spokesman said a widely reported figure of $100 million in restitution is not acceptable, but the attorney general apparently wants far more than that.

Any settlement between Merrill and Spitzer could act as a model for settlements with other major brokerages, which the attorney general charges have goaded analysts to issue glowing recommendations for stocks of companies the brokers have investment banking relationships with though the analysts disparage them in private.

Spitzer's office currently is talking to the Securities and Exchange Commission about possibly partnering in the investigation. He has said he needs the SEC to come in "strongly and aggressively."  Top of page