May 22, 2002 By Michael Gormley Associated Press Writer 3 min read

ALBANY, N.Y.(AP) – Merrill Lynch & Co. has agreed to pay $100 million to settle charges that the firm’s analysts misled investors with their stock ratings so the company could win lucrative investment banking fees. Merrill Lynch said Tuesday it will make the payment to New York state, which has been investigating the matter, and to other states, provided they accept the agreement.

The firm made a statement of contrition and agreed to structural reforms to assure that its stock analysts work independently from the firm’s investment bankers who do business with some of the same companies.

“This agreement changes the way Wall Street will operate,” New York Attorney General Eliot Spitzer said.

“By adopting the reforms embodied in the settlement, Merrill Lynch is setting a new standard for the rest of the industry to follow,” he added.

The investment firm, the nation’s largest, said the agreement “represents neither evidence nor admission of wrongdoing or liability,” a characterization that would fall short of Spitzer’s initial insistence on an admission of wrongdoing.

An admission of wrongdoing would have helped investors in civil restitution efforts, investors’ attorneys have said.

Spitzer had dropped the idea of establishing a restitution fund to allow such individual or class-action civil suits by investors.

Last month, Spitzer revealed details of a 10-month investigation into Merrill Lynch that uncovered e-mails from analysts disparaging stocks they publicly praised. Spitzer said analysts inflated the prospects of the companies’ stock to help land the firms as investment banking clients.

Spitzer threatened to file criminal charges unless Merrill Lynch agreed to make reforms, pay a fine and admit wrongdoing.

In the e-mails, Merrill analysts used profanities to describe some stocks and the words “disaster” and “dog” for others while publicly recommending that investors buy the companies’ shares.

Merrill Lynch issued a statement Tuesday apologizing for “the inappropriate communications brought to light by the New York state attorney general’s investigation.”

“We sincerely regret that there were instances in which certain of our Internet sector research analysts expressed views that at certain points may have appeared inconsistent with Merrill Lynch’s published recommendations,” the statement said.

David H. Komansky, Merrill Lynch chief executive, and Stan O’Neal, the firm’s president, said “Today’s result will ultimately benefit all investors and the capital markets.”

Spitzer is also investigating key Merrill Lynch rivals, and any settlement is expected to serve as a model for the industry.

Spitzer has subpoenaed information from at least a half dozen other major brokerages.

Some of the evidence collected so far includes employment contracts that detail how analysts were to be compensated for helping land investment banking clients.