Lawsuit against Merrill rejected
By Walter Hamilton
Los Angeles Times
NEW YORK — A federal judge threw out another investor lawsuit against Merrill Lynch & Co. yesterday, dealing a further blow to the scores of individuals who are suing Wall Street in hopes of getting back losses from the bear market.
U.S. District Judge Milton Pollack dismissed a class-action lawsuit that alleged conflicts of interest at a Merrill technology fund, saying there was so much media coverage of possible conflicts that investors should have known about them. A day earlier, Pollack threw out two class-action suits claiming that biased research by former Merrill stock analyst Henry Blodget caused investors steep losses on two Internet stocks.
Coupled with another judge's dismissal Tuesday of an investor suit against three other major Wall Street firms, Pollack's rulings show how difficult it will be for many individual investors to recover their losses through lawsuits, experts said.
Investors who file legitimate claims, especially arbitration cases with clear-cut damages, could fare well, experts said. But they said that broad-based class-action suits that simply accuse Wall Street of orchestrating a stock market bubble — even if there is evidence that analysts hyped stocks — are likely to fall flat.
"These rulings are quite significant, said Michael Perino, a securities-law professor at St. John's University. "They're a precursor for the future of these types of claims."
In the suit dismissed yesterday, an investor in the Merrill Lynch Global Technology fund alleged that fund managers didn't reveal that they invested in many companies that were also Merrill investment-banking clients. The suit also claimed that the fund bought stocks at prices that were inflated by misleading research reports written by Merrill analysts to win investment banking business for the firm.
Like many tech offerings, the fund soared in the late 1990s before crashing in the bear market. It jumped 143 percent from its start in June 1998 to the end of 1999, but shed four-fifths of its value in the next three years, according to Morningstar Inc.
Beyond citing the extensive media coverage of the conflict-of-interest issue, Pollack said that investors knew the fund bought risky stocks. He also ruled Merrill wasn't required to make the disclosures demanded by the investors.
"Merrill Lynch and the fund are not the insurers of plaintiff's investment in a highly speculative sector of the market," Pollack wrote.
Daniel Krasner, an attorney representing the plaintiffs, said people who buy mutual funds are the least-sophisticated investors, relying on funds because they don't understand how Wall Street works.
If the ruling stands, investors in all mutual funds "won't recover a dime" in suits against Wall Street, he said, adding that he is considering an appeal.
Mark Herr, a Merrill spokesman, said the company was "pleased by the judge's decision."
On Tuesday, Pollack dismissed two class-action claims involving 24/7 Real Media Inc. and Interliant Inc. In scorching language, Pollack labeled the plaintiffs "high-risk speculators" in search of "Olympian riches."
The rulings are noteworthy because the 96-year-old Pollack is a securities-law expert whose opinion is likely to influence other judges hearing similar cases.
"It's always easier for judges to go along with what another judge has done previously," Perino said. "The fact that it's Pollack makes it that much easier to follow his precedent."
In Tuesday's other ruling, U.S. District Judge Harold Baer dismissed claims that Goldman Sachs Group Inc., Morgan Stanley and Credit Suisse Group misled investors who bought shares of Covad Communications Group Inc., an Internet company.
The spate of rulings marks a shift in tone from less than a week ago, when a $1 billion settlement was announced in a separate case involving investors and more than 300 companies that launched initial public stock offerings during the 1990s market boom.
That deal had indicated that investment banks might be vulnerable to the battery of cases being filed by investors who allege they lost money because of Wall Street's transgressions. The announcement followed by about two months a separate $1.4 billion settlement between government regulators and 10 Wall Street firms over alleged stock-touting by analysts.
This week's rulings show how difficult it could be for many investors to translate broad allegations of wrongdoing — even if the actions by Wall Street seem egregious — into favorable court rulings and financial settlements.
