Will Holdout States Spoil Merrill Pact with N.Y.?

By Julavits, Robert | American Banker, August 29, 2002 | Go to article overview

Will Holdout States Spoil Merrill Pact with N.Y.?


Julavits, Robert, American Banker


When New York's attorney general first announced a $100 million settlement with Merrill Lynch & Co., one feature of the pact was that it offered the firm a chance to resolve at once nearly all state-level legal problems associated with the probe.

Now, however, with several states withholding approval, that very feature raises at least a possibility that the deal could unravel.

As many as seven states are holding out, including at least five -- Florida, Missouri, New Jersey, Ohio, and South Dakota -- that have expressed reservations about joining the settlement.

Colorado also has not signed. Fred J. Joseph, the commissioner of the state's Division of Securities, said it is still reviewing the document. California reportedly has not signed, but state officials did not return calls for comment.

New York Attorney General Eliot Spitzer announced the settlement on May 21 after spending months investigating whether Merrill's equity research analysts were "truthful and fair" in their analysis of companies with which the firm did investment banking business. New York, California, and New Jersey officials co-chaired a task force that assisted in the investigation.

If even one state refuses to sign the agreement, Merrill is free to walk away without paying a dime, according to people who are familiar with the document. Merrill asked that the stipulation be included so it could avoid liability from multiple state investigations.

The settlement calls for New York to receive between $43 million and $48 million from Merrill, with the rest to be split among the other 49 states, the District of Columbia, and Puerto Rico.

Don Saxon, the director of the Florida Department of Banking and Finance, said that the state has not yet signed on and is still reviewing the document.

Florida officials want to make sure the settlement "adequately addresses any concerns that we might have as a state," and "conforms to the legal standards that we are accustomed to using in the state of Florida for this type of agreement," he said.

The state could make a decision as early as next week, Mr. Saxon said.

Spence Jackson, a spokesman for the Missouri Secretary of State Matt Blunt, said that his state has "set no timetable" for a decision on whether to sign the agreement. "We are continuing to review that agreement and the impact that it would have on Missouri investors."

South Dakota officials have told other publications recently that they would not sign the agreement, but a spokeswoman for the South Dakota Securities Commissioner would say only that her state had not signed yet.

"It's important that all 50 sign on to bring closure, to end the investigations," said one industry source, who asked not to be identified. "Any state that does not sign on is free to pursue its own case against Merrill."

William Halldin, a Merrill spokesman, says the firm has already implemented a large part of the settlement in making changes to its business practices. The agreement required Merrill to sever any links between analyst compensation and investment banking, create a investment review committee to approve research recommendations, and prohibit investment bankers from influencing the compensation of research analysts. …

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