A Manhattan federal judge on Thursday barred the financial news service Theflyonthewall.com from issuing immediate news about analyst research from several Wall Street banks, often before recommendations are shared with clients.
Ruling in favor of Bank of America Corp’s Merrill Lynch unit, Barclays PLC and Morgan Stanley, US District Judge Denise Cote said Theflyonthewall.com engaged in “systematic misappropriation,” essentially getting a “free ride” from its quick publication of upgrades and downgrades that can move stocks higher and lower.
Cote issued a permanent injunction requiring the Summit, New Jersey-based company to wait until 10am to report research from the three banks that issue reports before the market opens, and at least two hours for research issued thereafter. The bulk of research is typically issued before the open.
While the banks had sought longer delays, Cote said: “This time frame preserves incentives for the firms to create and disseminate research reports to their investor clients, while still recognizing the inevitable, fast-moving, and widespread informal communication of recommendation on Wall Street.”
Cote added she could not excuse Theflyonthewall.com’s activities simply because recommendations are also reported by many rivals, or are otherwise leaked or rumored.
“The legally salient fact ... is that Fly is exploiting its self-described ‘hefty relationships with people in the know,’” she wrote.
The judge said Theflyonthewall.com may apply in one year to lift the injunction if the banks do not take reasonable steps to halt the unauthorized distribution of research.
According to the opinion, Theflyonthewall.com said the lawsuit has forced it to ritualistically engage in “confirming” the substance of research with two or three sources before publishing — still, typically, before the market opens.
The company has about 30 employees.
It charges US$50 a month, or US$480 annually, for its services, its Web site shows.
Glenn Ostrager, a lawyer representing Theflyonthewall.com, said the ruling is “at variance with existing law.”
He said his client would appeal to the Second Circuit Court of Appeals, and expects the financial press to “vigorously support” an appeal.
Like many rivals, Theflyonthewall.com typically posts headlines from research reports and press releases, and longer summaries when available.
It was not immediately clear how the 89-page ruling might affect the ability of real-time financial news providers such as Thomson Reuters, Bloomberg LP and News Corp’s Dow Jones Newswires to tell clients of potentially market-moving research.
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