Merrill Lynch, Henry Blodget, and Market Ethics

The ethical case to be examined in this report is that of Merrill Lynch & Company and the firm's Internet Research Group head analyst, Henry Blodget. During his tenure at Merrill Lynch, Blodget and the Internet Research Group he headed were responsible for providing support to the firm's various functions including research management, investment banking, and stock assessments and recommendations (Gordon, 2002). Blodget and the company have been targeted by New York Attorney General Eliot Spitzer for a thoroughgoing investigation of their practices, with charges levied indicating that the firm created a fraudulent system in which investment banking was given access to research that was more positive than analysts knew to be the case (Sham research, 2002).

Additionally, Blodget and his staff have been accused of aiding Merrill Lynch by over-rating selected offerings or stocks to increase sales, thus placing clients at risk (Sham research, 2002). The ethical issue, therefore, is whether or not blending and/or obfuscating of the resources of a firm such as Merrill Lynch, which functions in disparate areas of the market, is a violation of the spirit and the letter of the law and the regulatory environment surrounding the financial sectors.

Firms such as Merrill Lynch are supposed to erect a "Chinese Wall" between their research and investment banking divisions; research reports produced by an

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nfoSpace, Internet Capital Group, Inc., Lifeminders, and 24/7 Media. Sources of the Situation As noted above, financial sector organizations such as Merrill Lynch are involved in several different aspects of the market. On the one hand, Merrill Lynch advises investors on best buys among the various stocks available. On the other hand, Merrill Lynch has an investment banking division which brings public its clients and also provides capital for new or established clients. IPO work generates hundreds of millions of dollars in fees for companies such as Merrill Lynch (Scrutiny turns toa, 2002). When the Chinese Wall between investment analysis or research and investment banking is breached, what results can be unethical behavior. Conflicts of interest between the two discrete divisions of a major firm such as Merrill Lynch are likely to emerge when a situation of this sort occurs. The conflict of interest charges are not new. They were leveled at Blodget and other leading analysts from virtually the moment that the dot.com boom burst in the spring of 2000. Blodget and others have been characterized by Spitzer (2002) as having acted as "quasi" investment bankers. In essence, these analysts are said to have wooed new c
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Approximate Word count = 2248
Approximate Pages = 9 (250 words per page)

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