- The Washington Times - Thursday, April 11, 2002

ALBANY, N.Y. (AP) New York's attorney general has expanded an investigation into potential conflicts of interest involving Wall Street analysts to firms that compete with Merrill Lynch & Co., the first and only publicly named focus of the probe.
"The investigation is extensive and it goes far beyond Merrill Lynch," Marc Violette, spokesman for Attorney General Eliot Spitzer, said yesterday. "The investigation also involves a number of other very prominent Wall Street investment banks."
Mr. Violette would not release the names of the other companies under scrutiny. But a source familiar with the investigation identified six that have received subpoenas or will soon.
The source, who spoke on the condition of anonymity, identified the firms as Goldman Sachs Group Inc.; Credit Suisse First Boston, a unit of Credit Suisse Group; Morgan Stanley Dean Witter & Co.; the UBS PaineWebber division of UBS AG; the Salomon Smith Barney unit of Citigroup Inc.; and Bear Sterns Co.
In a report on its Web site yesterday, the Wall Street Journal said Lehman Brothers Holdings Inc. and Lazard Freres were also among the firms that have received subpoenas or would receive them shortly.
Mr. Spitzer's investigation focuses on the accuracy and honesty of Wall Street analysts who recommend whether to buy or sell stock.
On Monday, Mr. Spitzer obtained a court order requiring Merrill Lynch to make detailed disclosures on whether the firm has done investment banking business or hopes to get such business for publicly traded companies that are the subject of its analyst recommendations.
Critics say analysts often promote stocks they cover so their firms can get lucrative merger and acquisition or stock underwriting fees from those same companies.
Mr. Spitzer said a 10-month investigation showed Merrill Lynch lied to clients and recommended shares they knew were probably bad investments.
The investigation, which honed in on Merrill Lynch's Internet research arm, uncovered a series of e-mail messages that Mr. Spitzer said show analysts had doubts about some stocks even while they maintained positive recommendations.
Mr. Spitzer said yesterday that efforts to settle the case with Merrill Lynch failed partly because the company did not want the e-mail messages made public.
Merrill Lynch said there is no basis for the accusations and that the e-mail messages were taken out of context. A company spokesman yesterday said Merrill Lynch was reviewing its legal options in advance of a deadline today for the court order to take effect.
Eric R. Dinallo, Spitzer's bureau chief for investment protection, said Merrill Lynch and other brokerages must reform the way they go about recommending stocks so individuals can make educated decisions about their investments.
"Our goal is to make sure that individual investors can have faith in the investment advice they receive from Wall Street," Mr. Dinallo said. "It appears from our investigation that many investors may have been badly served by investment analysts operating with severe conflicts of interest."
Mr. Spitzer said he did not know how much money customers lost, but he estimated the clients "number in the hundreds of thousands, if not millions."

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