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Merrill Lynch Will Pay $100 Million in Fines as Part of Settlement Reached with New York State

Aired May 22, 2002 - 05:17   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: Another big company in trouble. Merrill Lynch will pay $100 million in fines as part of a settlement reached with the attorney general of New York State. The settlement also is requiring the brokerage firm to change the way it handles stock analysts and investment research, and it has to say it's sorry, too.

Allan Dodds Frank has details.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): The settlement ends a year long investigation by the New York attorney general of the nation's largest retail brokerage, which had severely damaged Merrill Lynch's stock. The end of New York Attorney General Eliot Spitzer's investigation into conflicts of interest among analysts at Merrill Lynch frees his staff to concentrate on other Wall Street firms.

ELIOT SPITZER, NEW YORK ATTORNEY GENERAL: Today is the first significant step forward. I compliment Merrill Lynch for taking this step and I say to the other investment houses who have received subpoenas, I would suggest that you review your e-mails, review your documents and once you have conducted that review, I would suggest that you come in and have a forthright conversation with us so that we can march forward and clean up the industry.

DODDS FRANK: The settlement includes an apology from Merrill Lynch, but no admission of wrongdoing or guilt. From Merrill Lynch, Spitzer extracted the following reforms: analysts pay will no longer be connected in any way to investment banking; a special monitor will oversee all analysts' reports for the next year; and analysts will be paid based on how well their recommendations perform.

The $100 million fine will be split, with $48 million going to New York State and the remainder to the other 49 states. The agreement leaves the issue of restitution for investors to arbitration proceedings as well as individual and class action lawsuits.

STAN O'NEAL, PRESIDENT & COO, MERRILL LYNCH: We continue to believe that we will prevail in those suits and that we will be able to answer them in the normal course of business. The fundamental thing we go back to is that the integrity of our research, we believe, and the entire process was maintained.

DODDS FRANK (on camera): The fallout from the Merrill Lynch settlement already is beginning to show on Wall Street. Shortly after the announcement, Goldman Sachs issued new rules governing its analysts and the firm appointed Gerald Corrigan, the former president of the New York Federal Reserve, as its investment research ombudsman.

Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

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