Reverse Spin: Naughty e-mails get Merrill a legal slap

Could this Master of the Universe also be a Master of Deception?

New York state last Monday ordered Merrill Lynch & Co. Inc. to come clean about conflicts of interest between analysts and investment bankers, accusing the Wall Street brokerage house of handing out bum stock picks in exchange for more investment banking business.

A 10-month probe allegedly has uncovered e-mails in which Merrill analysts privately belittled companies while publicly telling investors they should buy their stock. “This is a shocking betrayal of trust by one of Wall Street’s most trusted names,” said the New York state attorney general, Eliot Spitzer.

Merrill, for its part, is disputing Mr. Spitzer’s allegations and has said it will defend itself vigorously. The attorney general’s “conclusions are just plain wrong,” the company declared in a written statement. “We are outraged that we were not given the opportunity to contest these allegations in court.”

Merrill has until April 19 to disclose in its research reports any investment banking ties it has had with an analyzed company dating back three years. Merrill also must say whether it will try to win investment-banking business from the customer once the research report is issued.

Meanwhile, the attorney general is focusing his attention on other investment banks. “We have issued a number of subpoenas to other major Wall Street firms,” says Juanita Scarlett, a spokeswoman for the attorney general’s office, declining to name the others.

Arthur Andersen drops a shoe

As if you couldn’t see this one coming with the lights out. Arthur Andersen LLP of Chicago last Monday unveiled plans to cut 7,000 jobs, a move that had been widely expected for several weeks in light of the company’s implosion stemming from its involvement in the Enron Corp. scandal.

The job cuts, mainly in Andersen’s U.S. audit practice, may be the first of many. “Long-term, we’ll continue to adjust as we need to,” says Grover Wray, who handles U.S. personnel issues for Andersen.

Parking her car in Harvard yard

Another Fidelity Investments executive is headed back to school. Gail McGovern, head of Boston-based Fidelity’s retail mutual fund and brokerage business, said Wednesday she will resign at the end of the month to take a faculty post at Harvard Business School in Cambridge, Mass.

Ms. McGovern will join Robert Pozen, former chief of Fidelity’s fund investing group, who recently took a job at Harvard’s Kennedy School of Government.

Kevin J. Kelly, president of Fidelity Brokerage Co., will assume Ms. McGovern’s responsibilities for the near term.

Stingy consumers

Shop if you love Alan Greenspan.

While U.S. consumers kept spending in March, they spent less than expected, a possible sign that the valiant efforts of the Federal Reserve Board chairman to pull the economy out of the icy grips of recession might take a little longer than expected.

The Department of Commerce disclosed in a report issued Friday that retail sales rose 0.2% in March, to $297.34 billion, matching a downwardly revised 0.2% gain in February. Previously February sales had been reported rising 0.3%.

March sales excluding automobiles were up a slightly stronger 0.4%, while February purchases outside the automotive sector were revised to unchanged, from a 0.2% gain. Analysts had expected a gain of about 0.4% in both overall March sales and in sales excluding autos.