As two more major investment houses confirmed they were subpoenaed in a wide-ranging Wall Street investigation, the state attorney general's spokeswoman said the case against Merrill Lynch & Co may be settled out of court.
Attorney General Eliot Spitzer is investigating whether Wall Street analysts gave high stock ratings to win lucrative investment banking business.
Any settlement with Merrill Lynch could be used as a model for deals with other large Wall Street firms under investigation for similar alleged conflicts among their analysts, Spitzer spokeswoman Juanita Scarlett said.
"There appears be a basis for productive discussion," Scarlett said Monday. "The attorney general would like to resolve the matter through negotiations."
She declined to confirm or deny that the settlement could cost Merrill Lynch US$100 million, as reported in the Wall Street Journal on Monday. The newspaper cited unidentified senior officials at the firm.
"That's not anything that's a definite," Scarlett said. "It's too soon to say where we'll end up."
Merrill Lynch spokesman Timothy Cobb said the company is negotiating with prosecutors but declined to provide details.
Spitzer claims several e-mail messages show that analysts in Merrill Lynch's Internet research unit had grave doubts about some stocks even though their research reports recommended that investors buy shares in the companies.
A law enforcement source said Monday that Spitzer wants Merrill Lynch to admit it was wrong, change its research practices and allow investors to recover money they lost by following the firm's stock recommendations. The source spoke on condition of anonymity.
Similar negotiations broke down months ago, prompting Spitzer to obtain a court order forcing Merrill Lynch to disclose more about the investment banking business it does or hopes to do with companies that its analysts rate.
Critics have long contended that Wall Street analysts face pressure to rate some companies positively in return for lucrative fees the brokerages earn from those companies by arranging their mergers and acquisitions deals or new stock offerings.
The court order is scheduled to take effect Friday, meaning the two sides have until then to reach an agreement over how the new disclosures would be made.
Merrill Lynch has said Spitzer's accusations are baseless, and that the e-mail messages were taken out of context.
Spitzer's investigation also includes at least six other Wall Street firms that received subpoenas, a source who spoke on condition of anonymity said last week.
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