PALM BEACH, Fla. - During Wall Street's dot-com boom and bust, Merrill Lynch customer Gary Friedman used the company's analyst ratings as a guide to picking stocks -and saw his hefty portfolio plummet by $4.9 million from 1999 through 2002.
Friedman, a Miami Beach trial attorney, recently won a $1 million award from Merrill Lynch, his Boca Raton attorney said Monday.
In an arbitration case heard by a National Association of Securities Dealers panel in Boca Raton, Friedman claimed the Wall Street investment giant hid conflicts of interest between its investment banking and research departments from him, and that it issued fraudulent analyst reports he used to pick stocks.
The panel found Merrill Lynch "guilty of intentional misconduct" and said its rating system hyped many stocks.
The $1 million award includes $730,909 in compensatory damages and $300,000 in punitive damages for Gary and Lisa Friedman. The couple had requested $4.9 million, plus interest and punitive damages.
Merrill Lynch disputed the NASD panel's decision.
"The claimants' losses, many of which came in blue-chip stocks, were caused by the same thing that caused millions of other investors to lose money between 2000 and 2002: the market plunged. That cannot reasonably be blamed on Merrill Lynch's research," the company said in a statement.
The Friedmans' portfolio included blue-chip stocks such as Microsoft, Disney and JPMorgan Chase. But the couple also owned stocks in a number of firms that became poster children for the dot-com bust, including CommerceOne, Inktomi and Corning. The Friedmans lost $1 million on Lucent, a telecom company that had an investment banking relationship with Merrill.
The Friedmans' attorney, Robert W. Pearce of Boca Raton, said similar suits filed by other investors failed because they focused on a single stock. Pearce took on Merrill Lynch's bull-market business practices, pointing out that Merrill had "sell" or "reduce" ratings on none of the 1,400-plus stocks it covered even as the market cratered in 2000.
"The company had a flawed business model," Pearce said. "They should have not had research working hand in hand with investment banking. None of these conflicts were disclosed to investors."
New York Attorney General Elliott Spitzer investigated such abuses at Merrill Lynch and other large Wall Street firms, and his settlement with the firms in 2003 created a $387.5 million fund to compensate investors. Spitzer also encouraged investors to pursue claims on their own.
- Gazette news services