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 always warned that investing in this volatile sector was inherently risky. His credibility began to wane in March 2000 when the Internet bubble burst. He reached his nadir in July 2001, when he and Merrill Lynch were sued by an investor in a case that subsequently was settled out of court by Merrill Lynch (Blodget leaves Merrill, 2001).
Subsequent investigations of Blodget's stock recommendations and those offered by members of his group have indicated that the putative "Chinese Wall" that Merrill Lynch is supposed to maintain between its research unit and investment banking business was ephemeral at best (NY prosecutor Spitzera, 2002). New York Attorney General Eliot Spitzer entered a court order that required Merrill Lynch to institute immediate reforms in its research business and to make disclosures to investors about its investment banking relationships. The central allegation is that Merrill Lynch's equity research analysts, s...