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Merrill CEO apologizes for analyst e-mails

April 27, 2002 

Merrill Lynch & Co. Chairman and Chief Executive Officer David Komansky apologized Friday for e-mails sent by some of the firm's research analysts that denigrated stocks it recommended investors buy.

"The e-mails that have come to light are very distressing and disappointing," Komansky said at the firm's annual shareholders meeting. "They fall far short of our professional standards and some are inconsistent with our policies."

Komansky's apology came as regulators widened investigations into whether analysts gave favorable ratings in order to win or retain investment-banking clients. Merrill is a focus of an inquiry by New York Attorney General Eliot Spitzer, who released copies of the e-mails this month. The firm's market value has dropped $8.5 billion since the investigation was announced April 8.

The CEO didn't specify what he was apologizing for. Merrill spokesman Tim Cobb declined to elaborate.

"We have failed to live up to the high standards that are our tradition, and I want to take this opportunity to publicly apologize," Komansky told about 400 shareholders. The standing-room-only crowd included the firm's senior executives and board members.

"We further regret that the perception of our research integrity has clearly been affected," said Komansky, who declined to say what policies may have to change or how much the firm might pay.

One of the Merrill e-mails called At Home Corp., an Internet-access provider that filed for bankruptcy protection in September, a derogatory name at the same time Merrill was recommending investors buy the stock.

"It's a step forward," Marc Violette, a spokesman for Spitzer, said of the apology. "One necessary aspect of resolution has always been contrition."

Komansky said Merrill is "redoubling" efforts to enforce policies and is negotiating with Spitzer, the Securities and Exchange Commission and other regulators to resolve conflict-of-interest claims. "Hopefully," more information will be available in the next week or so, Komansky said. Merrill last week agreed to disclose more information about its investment-banking relationships to users of its research.

The SEC on Thursday joined the investigation and said it would focus on all securities firms, not just Merrill. SEC Chairman Harvey Pitt said the agency will begin a formal investigation into whether securities firms committed fraud by issuing favorable research to attract or retain companies as investment-banking clients.

"It's good public relations for Merrill Lynch to acknowledge what's out in the public already," said Robert Heim, a former Securities and Exchange Commission enforcement attorney. "It's a step to address the problem."

The shareholders' meeting may be Komansky's last as CEO. He said in February that he may give up the post before retiring in 2004. Stanley O'Neal, 50, named president of the firm in July, probably will replace Komansky as CEO.

by Stephen Cohen, Bloomberg News. Copyright 2002,

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