Reverse Spin: Merrill’s concessions put heat on others

A heartfelt apology is nice, but it’s going to take a helluva lot more than that to restore investor confidence in Wall Street.

Merrill Lynch & Co. Inc. of New York, the nation’s largest brokerage firm, agreed Tuesday to pay a $100 million fine to settle, without admitting any wrongdoing, charges that its analysts misled investors with biased stock picks.

The settlement with New York state’s attorney general, Eliot L. Spitzer, calls for Merrill to change how it monitors and pays its stock analysts.

Mr. Spitzer intends to use Merrill’s settlement as a “template” for cases involving other brokerage firms. He is examining at least five other firms, including Morgan Stanley Dean Witter & Co., Salomon Smith Barney Inc. and Goldman Sachs & Co.

“Until the types of reforms outlined today become an industry standard, we will not have reformed the industry,” Mr. Spitzer said. “The public deserves it. There has been too much tainted advice on the Street.”

While none of the money in the Merrill settlement will go to investors, the firm’s involvement in the scandal – even if it doesn’t come out and admit to any wrongdoing – could aid investors in lawsuits alleging they were misled by the firm’s research.

Federal Bureau of Stock Tips?

Looking for a hot stock tip? Try asking your local FBI agent. A special agent and a former agent for the Federal Bureau of Investigation were indicted Wednesday for their role in an insider-trading scam.

Lynn Wingate, a current agent, and Jeffrey Royer, who quit the bureau in December, were charged with stealing damaging information on public companies from FBI files and giving it to trader Amr Ibrahim Elgindy.

Mr. Elgindy allegedly made money by short-selling the companies’ stocks and using the Internet to bad-mouth the companies and to drive their stock prices down.

“The allegations reveal a shocking partnership between an experienced stock manipulator and law enforcement agents,” said Alan Vinegrad, U.S. attorney for the Eastern District of New York.

Getting too close

Maybe someone should explain the concept of auditor independence to the folks at Ernst & Young LLP.

Last Monday, the Securities and Exchange Commission alleged that the New York accounting firm had violated rules aimed at keeping accountants independent from the companies they audit.

The firm developed and marketed a product with PeopleSoft Inc., a Pleasanton, Calif., producer of business software that also used Ernst & Young as an auditor.

This is the second time the SEC has brought an auditor-independence action against Ernst & Young. In 1995, the company settled an SEC action by agreeing to embrace a set of independence guidelines.

Taking it easy

Could it be a case of the pre-recovery jitters?

The Conference Board of New York said Monday that its index of leading economic indicators fell by 0.4% in April, the first time the index has dropped since September.

The decline, which exceeded analysts’ expectations of a 0.1% drop, goes a long way toward raising doubts about whether the recovery can maintain the robust pace it showed in the first quarter.

“I don’t think there’s much danger of the economy sliding back into a recession, but I do think we’re going to pull back from the stronger pace we saw in the earlier part of the year,” said Mark Vitner, senior economist with Wachovia Securities Inc. in Charlotte, N.C.