The Market Ethics

Merrill Lynch investment bankers, on the other hand, are in the business of lending and selling Initial Public Offerings (IPOs).

Various e-mails generated by Blodget and other members of the Internet group at Merrill Lynch indicated that stocks were given high "go to" ratings when the analysts' best information indicated that this was at the very least inappropriate (Spitzer, 2002). The ethical issue therefore centers upon the behavior of Merrill Lynch and the Internet group under Henry Blodget with respect to conflicts of interest involving stock research and corporate clients. These issues will be discussed in greater depth below.

Henry Blodget made a name for himself at CIBA Oppenheimer & Company with his coverage of the Internet and e-commerce in the early-to-mid-1990s. In December 1998, Blodget correctly forecasted a price target of $400 per share (pre-split) for Amazon.com, a target reached shortly thereafter (Blodget leaves Merrill, 2001). By 2000, having been hired away by Merrill Lynch, Blodget was listed as the highest ranked analyst in the financial business in a prominent annual survey by Institutional Investor.

Blodget became a favorite of the financial media, often serving as a source of quotes and industry background and appeared regularly on venues such as CNBC. Though bullish on Internet stocks, Blodget alway

Many on Wall Street and even more in the private investment community are questioning whether or not these new rules are sufficient in the wake of the actions of Blodget and Merrill Lynch (Wirth, 2002). Real reform is seen as the key to restoring investor confidence. Whether any significant reform will result from the changes Merrill Lynch has agreed to adopt is problematic. At this juncture, several other state regulators and attorneys general have stated that they would undertake their own investigations into the analysts' conflicts of interests in an effort to force similar reforms at a number of investment firms (Wirth, 2002).

It has been reported by Gordon (2002) that Blodget and members of his staff felt deeply uncomfortable with their role as a handmaiden of investment banking. Blodget and other analysts are said to have balked at the demands of research management, and investment banking, and corporate officers at Merrill Lynch to produce more generally positive stock ratings than their best information indicated should be produced. Blodget himself once threatened to "just start calling the stocksa like we see them, no matter what the ancillary business consequences are (in Gordon, 2002, p. 1).

Spitzer (2002) charged that under Blodget, this research group did not use its five-category stock rating system as Merrill Lynch policy dictated. This five point scale ranks a stock from 1 or "buy" to 5 or "sell." Blodget's group only used ratings 1, 2, and 3 ("buy," "accumulate," and "neutral") in its analyses, indicating that a particular stock would either experience a 20 percent or more price growth, a 10 to 20 percent price growth, or fluctuations in the range of 10 percent price growth to a 10 percent price decrease. A series of e-mails subpoenaed by Spitzer (2002) strongly supports the allegation that Blodget and his staff were contemplating a neutral rating on selected stocks while saying among themselves that the stock was going lower,

 

Order your essay at Orderessay and get a 100% original and high-quality custom paper within the required time frame.