NEWS Summary
Are the analysts always objective?
2002 Apr 09 - Who do analysts serve?
Mathew Graham's article "Who's calling the tune at brokerage firms?" in the Globe and Mail on Tuesday, April 09, 2002, states "For anyone still under the illusion that brokerage analysts issue unbiased, objective research for the benefit of investors, the allegations made about Merrill Lynch this week by New York's Attorney-General will come as a shock. For others, the case will probably just confirm the impression they already have — that analysts, even the ones at 'blue chip' brokerage firms, are severely conflicted about whose interests they are serving. The sooner investors get used to that idea, the better off they'll be."
Graham also writes "After a 10-month investigation, the New York AG's office won a court order on Monday that forces Merrill Lynch to reveal in its research reports whether it currently has an underwriting relationship with the company, and whether it is trying to win that company's business. ... the Attorney-General's office said that criminal charges could be laid against Merrill and other brokerage firms under the state's Martin Act, which 'makes illegal any fraud, misrepresentation, deception, concealment, promise or representation that is beyond reasonable expectation while engaged in the issuance, distribution, investment advice, sale or purchase of securities.' "
Graham aslo writes "For example, the affidavit cited the case of InfoSpace Inc., in which Merrill kept the stock on its high-profile Favored 15 list from August 2000 until December 2000 — even though Internet research head Henry Blodget (who has since left the firm) said in an e-mail to a colleague as early as July of that year that the stock was a 'powder keg' and 'many institutions' had raised 'bad smell comments' about the company's coverage. By October 2000, the Internet analyst was calling it a 'piece of junk,' despite the fact that the firm was continuing to recommend it highly."
SIPA says - Mathew Graham's article highlight's one of the problems small investors face in dealing with the major brokerage firms. Not only do the registered representatives face pressure to sell issues for which the brokerage is raising finance but the analysts also face pressures to produce reports to encourage investors to buy securities which may not be appropriate for some investors.
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