Judge Refuses to Restore Suits by Merrill Investors

A federal judge in New York refused Tuesday to revive lawsuits by investors who accused Merrill Lynch & Co. and its former top technology analyst, Henry Blodget, of issuing biased stock research.

U.S. District Judge Milton Pollack stuck by his decision of last month in which he dismissed the complaints as he barred amended claims against Blodget and Merrill, the world’s largest securities firm. Pollack ruled July 1 that the investors couldn’t prove a direct link between their stock losses and analyst comments. The plaintiffs owned shares in two Internet companies, 24/7 Real Media Inc. and Interliant Inc.

The investors have the option of asking an appeals court to reinstate the cases. Pollack still has 25 cases against Merrill before him that target analyst recommendations of other Internet companies. On Tuesday, Pollack denied the 24/7 and Interliant investors’ request to file their third complaint in the case.

The “plaintiffs have no right to a second amendment -- a third bite at the apple,” Pollack wrote. “They had ample opportunity to craft their complaints.”

The investors claimed Merrill misled them by issuing “buy” recommendations without disclosing that it also did business with 24/7 and Interliant.

The investors said they relied on reports from Merrill analysts, although not all of the plaintiffs bought shares through Merrill.

Pollack, in his July 1 ruling, called the plaintiffs “high-risk speculators” who “hope to twist the federal securities laws into a scheme of cost-free speculators’ insurance.”

On Tuesday, he rejected the investors’ bid to add new statistical evidence of Merrill’s claimed bias.

Pollack said again that the investors waited too long to file suit. He cited 11 media reports, dating to 1996, that warned of analyst bias.

“Well before the Internet bubble burst in March and April 2000, abundant material was in the public domain regarding the existence of widespread investment banking conflicts of interest,” he said.

Merrill spokesman Mark Herr declined to comment.

One hundred and sixty investors began filing suits against Merrill after New York state Atty. Gen. Eliot Spitzer announced two years ago an investigation into the firm’s analyst practices.

In some of the pending cases, investors cite e-mails from Merrill analysts, including Blodget, that were released by Spitzer. In them, analysts disparaged companies whose shares they were recommending and, Spitzer said, slanted their advice to garner fees in return for banking business.

Such e-mails were not at issue in the 24/7 and Interliant cases.

A lawyer for the investors didn’t immediately return a call.

Blodget quit Merrill in November 2001. In April, he agreed to pay $4 million and be barred from the securities industry in a settlement with regulators over publishing materially misleading research.

Merrill was among 10 securities firms, including Citigroup Inc. and Morgan Stanley, that agreed to pay $1.4 billion to settle civil allegations that analysts had misled investors.

Merrill Lynch gained $1.35 to $52.70 on the New York Stock Exchange.