Angry investors who lost fortunes backing internet companies hyped by brokers and their analysts are seeking revenge with lawsuits.
Merrill Lynch last week paid $400,000 to settle a high-profile arbitration case that had claimed its top internet analyst allegedly caused a former client to lose a half-million dollars.
Debasis Kanjilal, a New York paediatrician who filed suit in March with the New York Stock Exchange against Merrill Lynch, contends Henry Blodget had maintained a "buy" rating on wireless services provider Infospace despite the stock's steady descent.
The client further alleged that Blodget had done so with the intent of pursuing a lucrative financial deal for Merrill Lynch.
There was no admission of wrongdoing by either Blodget or Merrill Lynch, and the case was settled.
The plaintiff's attorney, Jake Zamansky, of New York law firm Zamansky and Associates, said when an investor relies on an analyst's recommendation and the analyst does not disclose a conflict of interest, the firm will be held responsible.
Blodget isn't the only one being singled out for scrutiny. According to Zamansky, he is considering taking legal action against Morgan Stanley's Mary Meeker, referred to as the "Queen of the Internet", and telecommunications analyst Jack Grubman, at Salomon Smith Barney.
Giga Information Group analyst Rob Enderle said the settlement could be damaging if it starts a precedent.
"If the case can be replicated, it doesn't bode well for the investment community."
Enderle said the settlement means that someone found something that will work.
"And there's a lot of hungry attorneys out there," he added.
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