Merrill Lynch Stox Shocker 

Prestigious investment firm Merrill Lynch & Co. yesterday was ordered 
to reform its disclosure practices after being accused of issuing 
misleading and "fundamentally flawed" research reports to clients. 

State Attorney General Eliot Spitzer said he got a court order after a 
10-month investigation showed Merrill employees lied to clients and 
recommended stocks they knew were probably bad investments. 

Spitzer called the order an interim step, and said a continuing probe 
could lead to criminal charges. 

"It is dramatic and troubling evidence that must be disclosed without 
further delay," Spitzer said. 

Merrill Lynch said in a statement that there is "no basis for the 
allegations made today by the New York attorney general." 

Spitzer charges the storied brokerage firm gave good stock ratings to 
companies with which it had lucrative investment-bank deals - even 
though the analysts privately said the stocks were dogs. 

16 responses total.

Man, wall street is really taking some hits.  We could have a full-scale witch
hunt before long.

describing it with the phrase "witch hunt" implies that the hunt is 
unjustified...

Good point.  

I wonder why they're picking on ML.  Must be skimping on campaign
"contributions".  Somebody disturbed the public's slumber so a sacrifice must
be made.  Pay no attention to the man behind the curtain.  Why should anybody
worry about the conflicts of interests that permeate Wall Street and auditing
firms.  Goverments got things under controll so switch on CNBC and buy and
hold whatever the analysts are selling.  So called cuz where your taking it
when you follow their advice.  

You could make the case that the Enron thing was caused by ordinary 
managerial corruption, of the same all-too-human variety that's even 
more effective when it's making a hell-hole out of some socialist 
country.  This Merrill Lynch scandal, on the other hand, is the sort of 
thing American capitalists can call thei own.  

Merrill Lynch was chosen because it is the biggest.  The Feds wanted to 
make an example so they wouldn't HAVE to use up tax money pursuing all 
the other firms.

What I wonder at this point is whether there is anybody left who will be 
foolish enough to take as gospel what a stock analyst tells them, and if 
not, whether there will any longer be a stock analysis industry in this 
country.

And they won't have to.  The media may elect to do it for them.

This all makes individual stock investing look like a real gamble. None 
of the information available to the public is apparently trustworthy -- 
you can't trust the balance sheets, you can't trust audits, and you 
can't trust analysts.  Feel good about your 401(k)'s chances?

My 401k is sufficently diversified that I will see a minimum return
of 2% per year.  It is split up into 7-10% blocks that invest in
cash, money-market, international and various domestic subcategories
sufficently that give me a positive return albeit not that great
in the past few years but it's better than a savings account and it's
tax-free to deposit to it.

My understanding is that a diligent amateur could spot plenty of warning
signs in the financial reports of Enron and most of the other recent big-
beancounting-bust corporations.  But how many individual investors in a
stock follow each of the following strategies:
 - read "reports" written by analysts who recommend 95% of the stocks 
        on the market as "buy" or "strong buy"
 - buy whatever seems to be going up or they've heard cool stories about
 - spend a couple hours digging through the company's published financial
        statements figuring out where the money is, comes from, and goes
?

#8, except for the last sentence and obvious contextual grammar issues, sounds
like a potential answer to a simple test question, 60 years in the future,
when they ask why the stock market dragged the economy through the depressed
much in the first decade of the 21st century.  I distinctly recall mentioning
the same kind of thing on some sort of excercize on the Crash. :)

There is no way somebody reading the published financial statements of
fact on Enron couldn't and shouldn't have seen what was happening.

On the other hand, the current tax laws allow for swallowing of
camels and straining at knats such that 'when efhutton speaks'... -
anybody even remember them?

Of course 'touts' of stock touts have an interest in touting the 
stock that they tout.  Why would they give that information away
for 'free' otherwise?  Duh.

But they didn't give it away for free.  Duh.  These were brokers making 
recommendations to their clients and collecting the commissions.  

they get commissions on sell orders, too, don't they?

Correction: commisions from their clients and, evidently, kickbacks 
from the dogs they push.

brokers collect a little vig each way, sell or buy. 

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