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: UNITED STATES DISTRICT COURT ! SOUTHERN DISTRICT OF NEW YORK ..,.14 . 4- 'V" 1 -" - . ( I - i 441`c4',i, : !,f,Y. 11------1,40 Al3RAHAM TWERSKY FA.MILY TRUST, on CV behalf of itself and all others similarly situated, 0i2tion. . 3 21 (:)
Plaintiff, .—.— FEDERAL SECURITIES ,;.- .. against 1-.-D • .. _ _ . _ . CLASS ACTION COMPLAINT ,i; -!...:.: ..;\ LP .:.,.„i .„..., '„,:.,.. . MERRILL LYNCH & CO., INC. and .,-...a 0,,, ,.::,,..... HENRY M. BLODGET, r.... Jury Trial Demanded .._...... - -..-., Defendants. ... c.,.? t:- t e...-t.-..-.0 1.51 . ,.. Plaintiff, individually and on behalr of all other persons siiiiilaily situated, by its
undersigned attorneys, for its complaint, allege upon personal knowledge as to itself and its own acts
and upon information and belief as to all other matters, based upon the investigation made by and
through its attorneys, which investigation included, among other things, a review of analyst reports
published and disseminated to the investing, public by defendant Merrill Lynch & Co., Inc.. ("Merrill
Lynch"), internal c.ommunications of Merrill Lynch employees and recent court filings by the New
York State Attorney General obtaining an order requiring immediate relbrins by Meitill Lynch:
NATURE OF ACTION --
1. This is a securities class action on behalf of public ill ycstois who purchased the
common stock of 24/7 Real Media, Inc. ("2417" or the "Company") during the period from February
I 8, 2000 through No yembei 9, 2000, both dates it 'elusive Ole "Class Peliod"). Nanied as defundaitts
are MerrilILynch and its former star intcrnet research analyst Henry M. Blodgct ("Blodget") These
defendants are Lthaiged with violations of Suction 10(1) oldie Sean itics Exchange Act of 1934 and
Rule 40b-5.
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2. During the Class Period, defendants issued to the investing public false and
misleading analyst reports and ratings about the Company. As a result, the mark-et price of the
Company's common stock was artificially inflated, maintained or stabilized during the Class Period
to the injury of plaintiff and the Class who purchased the stock durin g the Class Period relying on the
integrity of the price of the stock. .._....„ 3. On April 8, 2001, New York State Attorney General Eliot Spitzer issued a press
release announcing that he had obtained a court order requiring Merrill Lynch to make more
disclosures to investors about its relationship with investment banking clients and provide more
context for its stock ratings The court action was the result of a ten-month investigation by the
Attorney General that concluded that "the firm's supposedly independent and objective investment
advice was tainted and biased by the desire to aid Merrill Lynch's investment banking business" The
press release continues
Spitzer cites dramatic evidence that the firm's stock ratin gs were biased and distorted in a.n attempt to secure and maintain lucrative contracts for investment banking servicesHAs a result, the firm r?ften disseminated misleading information that helped its corporate clients hut harmed individual investors.
"This was a shocking betrayal of trust hy one of Wall Street's most trusted Ilaille.SY° Spitzer said. "The case must he a catalyst for reform _ throughout the entire industry."
Spitzer's office uncovered a tmtfor breaktloivn in the supposed separation between the banking and research divisions at Merrill Lynch lu fact, analysts at Merrill Lynch helped recruit new investment banking clients and were paid to do so. The public, however, was led to believe that research analysts were independent, and that the firm's rating system would assist them in making critical investment decisions.
As part of a quid pro quo between the firm and its investment banking clients, Merrill Lynch analysts skewed stock ratings, giving favorable coverage to preferred clients, even when those stocks were dubious invesiments.
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This problem and other conflicts of interest are revealed by internal e-mail communications obtained during the investigation by- the Attorney General's off! ce.
These communications show analysts privately disparaging- companies while publicly recommending their stocks. For example, one analyst made highly disparaging remarks about the management of an inter= company and called the company's stock ''a piece of junk," yet gave the company, which was a major investment banking client, the firm's highest stock rating. . .
The communications show analysts complaining about pressure from Merrill Lynch's investment bankin2. division. For example, a senior analyst writes: "the whole idea that we are independent of (the) banking (division) is a big lie."
A senior manager stated: "We are off buses in hoW lve rate stocks and heir much we bend over backwards to accommodate banking." But nothing was done to remedy this fundamental problem.
The communications show that the problenm at Merrill Lynch went far beyond a single analyst or research unit. For example, the head or the equity division wrote to analysts: "We are once again surveying your contribution to investment banking ... please provide complete details on your involvement .. paying particular attention to the degree your research played a role in originating .
Anti most importantly, the communications show hmv individual investors were harmed. A research analyst complained about giving a buy rating to a poor investment: " f don't think it is the right thing to do. John and Mary, Smith are losing their retirement because We don't uvint client's CEO to he mad at us."
4. As described in court papers filed by the Attorney General, 2-477 is among the intcrnet compa.nics Merrill Lynch publicly hyped but privately disparaged in its pursuit of lucrative banking fees to the tremendous Financial detriment of public investors.
5. Merrill Lynch had lucrative investment banking relationships with 24/7. For example, Merrill Lynch led the Company's August 1998 initial public offering and April 1999
3 .1 secondary offering. These and other engagements earned Merrill Lynch tens of millions of dollars in fees.
6. To protect this important client and maintain and enhance its lucrative banking relationships, Merrill Lynch issued positive ratings on 24/7 which were materially misleading as they were inconsistent with defendants' undisclosed contemporaneous negative assessments of the
Company. For example, while reiterating a short-term accumulate, long-term accumulate rating,
Blodget internally labeled the stock a "piece of sh--." Even after the Class Period, defendants still failed to reveal Elicit true assessments ()Elite Company and never rated the Company reduce or sell.
For example, on March 22, 2001, instead of downgrading the stock further, he issued a report without a rating.
7. Defendants' false and misleading reports artificially inflated, stabilized or maintained the price-o11-24/-7-shares. Merrill Lynch and Blodget had tremendous influence on the market price of into-net stocks, including that of 24/7. Blodget enjoyed celebrity status and the reputation as one of the most influential analysts in the technology world. For example, in October
1999, Time Magazine named Blodget onc of the fifty most important people shaping technology today and "arguably the most influential voice on Tuternet stocks in the world." • 1The March .5 , 2001 edition of Forbes referred to Blodget as a "god in the Internet world." The October 2, 2000 edition of Forhine called Blod g,et -the media's favorite Internet talking head." The March 12, 2001 issue of The Washingion Pot noted that since 1998 Blodget had been named 95 times in the Wall Street
Journal, 66 times in the Neu Thrk Times, 53 times in The Wash114,YlonPosl and 27 times in Husiness
Week. Blodget also appeared numerous times on financial news television programs. According to the Apiil 3, 2000 edition ur 1-3usines.v Week, Blodget appeared oi was mentioned 211 times front
4 January 1, 1999 to March 21, 2000 on ABC News, NBC News, CNBC, CNN, CNNln, and Nightly
Business Report.
8. Blodget's ability tosignificantly affect the prices of internet stocks, including 2417, was widely recognized in the financial press. For exam*, on August 19, 1999, the .Vew York TillleS reported that "a recommendation of eight Internet stocks by Merrill Lynch's influential analyst, Henry
Blodget, helped keep the Nasdaq average in positive territory....' Also that clay, the 13/4111 Suvel
Journal noted that "electronic-conuinerce stocks got a sudden boost yesterday after Merrill Lynch analyst Henry Blodget told clients in a conference call that he believed sentiment is turning back toward these issues...."
JU RIS DICTION AND VENIIE
9. The claims asserted below arise under §§ 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15. U.S.C—.§§ 78j(b)_and 781(a), and. Rule Ob-5 pro- mulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F. R.. § 240 10b-.5.
10. Jurisdiction is conferred upon this Court by§ 27 of the Exchange Act, 15 U.S.C.
§ 78aa and, 28 U.S.C. §§ 1331 and 1337.
11. Venue is proper in this District pursuant to § 27 of the Exchange Act and 28
§ I 391(b) since Merrill Lynch has its principal place of business in this District, and many of the acts alleged herein, including the dissemination of the misleading statements to the investing public, occurred in substantial part in this District.
12. In connection with the acts, conduct and other wrongs alleged herein, defendants, directly and indirectly, used the means and instrumentalities of interstate comincice, including the
United States mails, interstate telephonic communications and the facilities of the national securities exclianges.
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THE PARTIES
Plaintiff
13. Plaintiff Abi attain Twersk.y Family Trust purchased shares of the Company's
coinmon stock during the Class Period as set forth in the accompanying certification and has been
damaged as a result of defendants' conduct as described herein. . _ . . . . . • . . . Defendants
14. Defendant Merrill Lynch & Co., Inc, is an international investrnent firm that
provides investment banking services to businesses, enga ges in ietail and institutional sales to its
customers and publishes research reports and ratin gs on stocks. Met I„ynch's corporate headquar-
ters are located in New York City.
15. Defendant Henry M. Blodget was, until his departure fi-oni Merrill Lynch in
December 2001, a managing director and head of the internet research group in New York City._ As
described herein, defendant 131odget was regarded throughout the Class Period as the most influential
internet analyst in the world. His ability to move stock prices was widely recognized and reported
in the media.
CLASS ACTION ALA TGATIONS
16. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)t 310n behalf °fall persons who purchased shares ofthe Company's common
stock during the period from February 18, 2000 through November 9, 7000, both dates inclusive (the
"Class"). Excluded from the Class are defendants: members of the individual defendant's immediate
family; officers, directors, subsidiaries or affiliates ofMerrill Lynch; any entity in which any excluded
pet son has a controlling interest; and legal representatives, heirs, successors or assigns of any of the
foreguilig.
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17. The members of the Class are so numerous that joinder of al] members is
impracticable. While the exact number of Class members is unknown to plaintiff at this time and can
only be ascertained through appropriate discovery, plaintiff believes there ate, at a minimum,
thousands of members of the Class who purchased Company common stock during the Class Period.
18. Common questions of law and fact exist as to all members of the Class and _ . predominate over any questions affecting solely individual members of the Class. Among the
questions of law and fact common to the Class ate:
• whether defendant.s engaged in a.cts or conduct in violation of the federal securities laws as alleged herein;
• whether defendants participated in and pursued the common course of conduct complained of herein;
• -whether defendants issued false and misleading statements during the Class Period;
• whether the market prices orthe Company's common stock durinp,. the Class Period was artificially inflated because of the defendants conduct complained of herein; and
▪ whether the members of the Class have sustained darnages and, if so, what is thc proper measure of damages.
19. Plaintiff's claims are typical of the claims of the members of the Class, as plaintiff
and members of the Class sustained damages arising, out of defendants' wrongful conduct in violation
of federal law as complained of herein
20. Plaintiff will fairly and adequately protect the interests ofthe members of the Class
and have retained counsel competent and experienced in class and securities litigation. Plaintiff has
no interests antagonistic to or in conflict with those of the Class.
21 A class action is superior to other available methods for the fair and efficient
adjudication or this controversy because joinder of all members of the Class is impracticable.
_ F'urtherinore, because the damages suffered by individual Class members may be relatively small, the
expense and burden of individual litigation make it impossible for the Class members individually to
redress the wrongs done to them. There will be no difficulty in the management of this action as a
class action.
22. Plaintiffwillrely, in part, upon the presumption of reliance established by the fraud-
on-the-market doctrine in that:
• defendants made public misrepresentations or failed to disclose material facts during the Class Period,
• the omissions and misrepresentation were rnaterial;-
• the common stock of the Company traded on the Nasdaq, an efficient market;
• the market reacted to public information disseminated by defendants,
• the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value ofthe Company's securities; and
• plaintiff and thc members of the Class purchased their Company stock between the time the defendants failed to disclose or misrepresented material facts and the time the Mae facts were disclosed, without .knowledae of the omitted or in i srepresented facts.
23. Based upon the foregoing, plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
SUBSTANTIVE ALLEGATIONS
Summary of Egregious Practices
24. Since 1999, Merrill Lynch internct research analysts have published on a regular
basis ratings for internet stocks that were materially misleading because they did not FEfleet the analysts negative assessments of the companies. The analysts publicly hyped but privately disparaged
numerous companies in their pursuit of securing and maintaining lucrative investment banking
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engagements for Merrill from those companies and increasing the compensation of research analysts.
Indeed, the research analysts often acted as quasi-investment bankers, includin g pitching the client, marketing the offering and initiating and doing "follow-on" research coverage. In sum, far from issuing independent and objective reports and ratings on internet companies such as 24/7, Men-ill and its analysts issued biased reports to serve their own financial interests.
25. This is illustrated by a .Biodget March 21, 1999 memorandum titled "Managing the
Banking Calendar for Internet Research," which was distributed to Co-I-Ieads of U.S. Equity
Research and other senior Merrill Lynch bankers. Blodget commimicated his expectation that a minimum of 50% ef his and his staffs time be comn-iitted to investment banking matters and described his work schedule for one week as being divided "85% banking, 15% research
26. Another Merrill Lynch internet analyst candidly admitted in a March 21, 2001 e-mail-to-another colleague that "[w]e'd win brownie points" if Merrill Lynch investment bankers could ."cleliverT coverage to an issuer.
2T Merrill Lynch analysts internally acknowledged their lack of independence from investment banking. A November 16, 2000 e-mail from analyst Kirsten Campbell to Bloduet stresses that "the whole idea that we are independent from banking is a big lie...." In fact, Merrill Lynch research management internally acknowledged that "we are off base on how we rate stocks and how much we bend backwards to accommodate banking, etc."
28. In an effort to appease clients and Merrill Lynch investment bankers, the internet research group ignored the bottom two categories of the five-point rating system ("reduce" and
"sell") and used only the remaining ratings ("buy," "accumulate" and "neutral"), thereby converting a published, purportedly objective five-point ratin g scale into a biased, undisclosed three-point
9 .7 .
system. From the spring of 1999 to the fall of 200 1, Merrill Lynch never published a single reduce or sell rating on any stock covered by the internet group.
29. Merrill Lynch was successful in getting Blodget and its internet analysts to issue biased and favoiable ratings and reports, which were contrary to their objective assessments, by linking their compensation, at least in part, to the lirrn's investment banking business. For example, . . . an October 13, 2000 memorandum from Deepak Raj, then the co-head of global equity research at
Merrill Lynch, distributed the following requests to all equity analysts:
We are once again surveying your contributions to investment banking during the year...Please provide complete details on your involvement in the transaction, paying particular attention the degree that your reseal ch coverage played a role in origination, execution and follow-up. Please note, as well, your involvement in advisory work or merger acquisitions, especially where your coverage played a role in securing the assignment and your follow-up marketing to clients. Please indicate where your research was pivotal in securing participation in high yield offering.
(Boldface added.)
30. in a November 2, 2000 memorandum titled "IBK Contributions: Internet Team,"
Blodget and the internet research group responded, stating that the group participated in over lfly successful or potential investment banking transactions resulting in $115 million for 11/lei-till and detailed the investment banking services rendered by his analysts, including initiation and Ibllow-on research covera ge. Shortly thereafter, Blodget received a hefty increase in his compensation. His annual compensation went from S3 million for 1909 to ¶12 million for 2001.
31. These egregious practices and policies are detailed in internal Merrill Lynch documents released by the Office of the Attorney General of the State of New York on April 8, 2002.
Indeed, the Attorney General, based on the Jesuits of a ten month investigation, has obtained an
Order from the Supreme Court of the State of New York directing defendants to provide more
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documents a.ncl testimony if requested and requiring Merrill Lynch to make disclosures about its past,
current, and future investment banking relationships with a corporate client The firm also must
disclose in research reports how many buy and sell recommendations it has in a particular sector of
coverage. Mcrrill Lynch has reportedly reached an interim settlement relating to disclosures, but the
larger issues of possible criminal conduct and payment of restitution for violations ofNew York state
securities laws are still unresolved.
32. On April 23, 2002, the board of directors for the North American Securities
Administrators Association, which represents the seculities regulatoi s of all 50 U.S. states, the
District of Columbia and Puerto Rico, the issued a press release stating that they had
voted to form a multi-state task force that will focus on the issues raised by New York Attorney General Eliot Spitzer in investigating underwriting and analysts' research issues and possible securities law violations by Wail Street firms. The task force will he co-chaired by California, New Jersey and NE:Av York. The investigation wiil center on practices that adversely affected_ thousands of Main Street investors nationwide.
33. That same day thc U.S. Justice Department announced that it plans to examine
allegations that securities analysts have rnisled the public. "It's something we need to take a closer
look at," Bryan Sierra, a spokesman for the Justice Department's criminal division, said. "Financial
reporting, including the work of financial analysts, is on the radar screen."
Examples of Met-rill Lynch's Litcrittive Ranking Relationships with 24/7
34. Merrill had extensive investment banking relationships with 2417, which describes
itself as a global provider of end-to-end ItIvortisin g and marketing solutions for Web publishers;
online advertisers, advertising agencies, e-markcters and e-connmerce rnerchants.
35. On August 14, 1998, 24/7 announced an initial public offering of 3,250,000 shares
of its comnion stock at $14.00 per share. Merril! Lynch was lead manager •
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36. On September 8, 1998, Merrill Lynch initiated coverage with a near and long-term buy rating.
37. On April 27, 1999, 2417 sold 3,500,000 shares of its common stock at S46 per share in a secondary offering. Merrill Lynch was lead manager.
38. On May 12, 1999, defendants reinstated coverage with a near-term accumulate and . . a long-term buy rating.
39. On August 12, 1999, defendants upgraded 24/7 to near and long-term buy.
40. To maintain and enhance Merrill Lynch's lucrative relationships, defendants issued materially misleading reports on 24/7 throughout the Class Period. Biudget was also motivated to issue such repo' Es because his compensation was linked to his contributions to Mci ill Lynch's investment banking business.
False and/or Misleading-Statements and Omissions
41. Thi oughout the Class Period, defendants issued posi Live reports and ratings on 24/7 which were totally inconsistent with their private assessments of the Company. Below are some examples of such mate' ially misleading statements.
/12. On February 1 g, 2000, defendant Blodget issued an internet services industry report discussing regulatory and government scrutiny of online privacy and reiterating a near and long-term buy rating for 24/7
43. On April 5, 2000, defendant Blodget issued an internet services industry report previewing 1() 2000 earnings. The report reiterated the near and long-term buy ratin g and commented "Upside to revenue and EPS - for 2417. The report also commented
The total market capitalization of the Internet sector is now more than $i trillion, up from $1 billion in 1995. The total number of public internet companies is alsn now more than 400, up from 1 in early 1995 (AOL). Although these statistics illustrate the truly spectacular value-creation the Internet opportunity has produced thus far as far as we know, no other opportunity has eicaied so much market value in so short a time), we continue to believe that over the long-haul, the market value of the sector will grow to at least 2X-3X today's.
44. On June 6, 2000, defendant Blodget issued a report on 24/7 discussing the
Company's purchase of i Promotions, a designer of online sweepstakes, and commenting, "We think sweepstakes are a gi eat add-on feature [to] 2417's business mix, particularly thc ad network and email business.- The report reiterated a near and long-term huy tbr the Company.
45. On July 5, 2000, defendants issued an advertising and publishing monthly valuation report that reiterated a near and long-term buy for the 24/7.
46. On August 7, 2000, defendant Blodget issued an internet commerce industry report adjusting 24/7 to near and long term accumulate, which, according to the ratings criteria described in that report, means "good growth prospects," -improving financial performance," "valuation justifiable," and "some uncertainties or reservations remain." The comments specific to 24/7 were
2nd/3(rd) player in advertising services market. Core ad network business highly exposed to spending by dot-coms. Profitability possible, though not clear, before YE 2001. May require additional funding. integration risk associated with 4 acquisitions this year.
47. On August 11, 2000, defendant Biodget issued a report on 24/7 noting that the
Company met his expectations tbr Q2 and reiterating a near and long term accumulate rating
48. The analyst reports and ratings described above concerning the Company Were materially false and misleading when made because they failed to disclose the true, contemporaneous opinions of defendants about 24/7 and defendants' lack ofindependence.
49. For example, on March 6, 2000, Merrill Lynch acialyst Virginia Syer (who reported to defendant Blodget) ciratled a report noting the launch of a proprietary system hy 24/7 and
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previewing Q4 1999 results Sycr e-rnailed thc draft to Blodgct for his approval and commented that
she was "trying to he oblique to help stock in anticipation of eloivngrade on iverl nestheyl. " Despite
privately expressing her expectation that the stock would be downgraded within days, 24/7 remained
a near and long-term buy for months diet-wards.
50. On October 10, 2000, Merrill Lynch analyst Eve Glatt e-mai led defendant Eodget . . a news article about software glitches at 24/7. In her e-mail, Glatt comments that the article
"probably confirms what you and Virg[inia Syer] have talked about for some time." Blodget
responded, "that it's a pos? ves." Lam in this e-mail exchange, 13Iodget pi-ovides a "cheat sheet"
for his abbreviations:
lol = laughing- out loud gt = great pos = piece of shi[-] nlw = pls puhleeeeez iinho = in my humble opinion
5 Defendants' misleading statements artificially inflated, maintained or stabilized the
price of 24/7 stock throughout the Class Period to the injury of plaintiff and the Class As already
detailed, Merrill Lynch and Blodget's ratings and reports on Internet stocks such as 24/7 had
tremendous market impact. When they spoke, the market listened. During the Class Period, 24/7
stock traded as high as $59.94. After the Class Period, the price dropped to less than $2.00. On
April 23, 2002, the stock closed at $0.25. If the defendants had revealed their true assessments of
the Company during the Class Period, its stock would have traded at substantially lower prices.
52. On November 9, 2000, the end of the Class Period, defendant Blodget
downgraded 24/7 to a near and long-term neutral, but still did not disclose his true assessment about
the Company. Indeed, neither he, nor any other Merrill Lynch analyst ever downgraded the stock
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to reduce Cif sell.- On Match 22, 200 1; instead of duwngrading the stock further, he issued a report
without a rating.
Revelations of Defendants' Misconduct
53. Defendants' misconduct as to the ratin gs of 24/7 began to be revealed with the
April 8, 2002 filing of an affidavit by Eric R. Dinallo, Chief of the Investment Protection Bureau of . . . the New York State Department of Law, and Of Counsel to the New York Attorney General, in New
York Supreme Court in connection with proceedings brought against Merrill Lynch and certain of
its officials under Article 23-A of the General Business Law. Based on that affidavit and exhibits, the
Supreine Court issued an order preliminarily enjoining Merrill Lynch from issuing any rating or
analysts report unless the following disclosures were made therein: its investment banking
relationships with the rated Company during the three years preceding the issuance of a report,
whether Merrill Lynch "currently has-or-is-attompting-to-obtain any investment banking relationship'
with the covered company, and information, on a percentage bases, "of the aggregate distribution,
across the various rating categories tied by [Merrill Lynch], for all stocks in the sock)] or industi y
group applicable to the [covered company]." Implementation of the Order was stayed until April 19,
2002.
54. The New York State Attorney General also announced that it is exploring the
possibility of criminal charges against thc defendants and restitution of over $100 million
55. On April 18, 2002, Merrill Lynch and the Attorney General reached a preliminary
interim settlement, purslia.nt to which Merrill Lynch agreed to make certain disclosures in its reports
about its existing and future investment banking relationships with issuers covered by its ratings or
reports, including compensation received from corporate clients in the past 12 months and a
prominently placed acknowledgment that investors should assume that Merrill is seeking, or will
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see.k.:inyestment banking and othei -bush ics's frt;in t covered company " The issues of possible - •
criminal charges and restitution remain unresolved to date.
56. As the Attorney General stated on Apiii 18: "Thep disclosures are necessary to
inform consumers and investors nf the inherent conflict of interest at Merrill Lynch." T-le cautioned,
however, that lajlthough we are still negotiating, serious issues remain to be resolved before we can
reach a final agreement. - He insisted that any such agreement must remedy 'fundamental structural
flaws" in Merrill's business and provide 'permanent relief for the company's state securities laws
violations."
5T The papers filed by the Attorney General's Office demonstrate that the defendants
not only recommended the stock of 24/7 while having private reservations but that such conduct was
systemic and affected numerous stocks. These defendants consistently recommended stocks, despite
- clear misgivings, in pursuit of investment banking fees. Below are a few examples
58. In 2000, Merrill Lynch sought nvestment bankin g business from internet company
GoTo.com ("GoTo") (now known as Overture Services, Inc.) in connection with a. -private placement
for a European subsidiary of GoTo. Merrill Lynch obtained the business by, in part, promisin g that
defendant Blodget would initiate coverage of GoTo, "coverage" was understood to incan positive
coverage. At the same time, however, Bloclget candidly told an institutional investor that there was
nothing interesting about CioTo "except banking fees."
59. After winning the business, Merrill Lynch analyst Kristen Campbell ("Campbell')
began drafting a researc.h report initiating coverage of GoTo. Her e-mails to defendant 13iodget
reveal her awareness or the devastating financial results suffered by individual investors as a result
of defendants' inisleading ratings:
16 if 2-2 means that we are putting haIfof merrill retail into this stock because they arc out accumulating it then i don't think that's the tight thing to do. We are losing people money and i don't like it. John and rnary smith are losing their retirement because we don't want todd [Tappin, GoTo CFO] to be mad at us.
60. In the sante e-mail, Campbell also acknowledged that "the whole idea that we are independent from banking is a big lie."
61. Other examples include publicly touting Lifeminders as a. short-term accumulate and long-term buy to the public, but privately describing the company as a "POS" or piece of shi--; and privately calling ExciteP.Hoinc "neutral," "flat, - devoid of any "real catalysts" for improvement and "such a piece of crap" while publicly rating the company a near-term accumulate, long-term buy.
(.1_,A1IVIS FOR RELIEF COUNT 1 (Against AE1 Defendants Fur Violations of Section 10(0 and Rule 10b-5 Promulgated Thereunder)
62. Plaintitirepeats and realleges each and eveiy allegation contained above as if Cully set forth herein.
63. Each of the defendants: (a) knew or recklessly disregarded material adverse non- public information about the Company which was not disclosed; and (b) participated in dra.ffing, reviewing and/or approving the misleading statements about the Company.
61. During the Class Period, defendants, with ktiOw1edi-7=e - of offeCkless disregard for thc truth, disseminated or approved the false statements specified above, which were misleading in that ths.:y contained inisrept esentations and failed to disclose material racts necessaty in ni der to inake the statements made, in li ght of the circumstances under which they were made, not misleading.
65. Defendants have violated § 10(b) ofthe Exchange Act and Rule 101)-5 promulgated thereunder in that they. (a) employed devices, schemes and artifices to defraud (b) mAde uni rue
17 statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading, or (c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon the purchasers of the
Company stock during the Class Period.
66. Plaintiffand the Class have suffered darnage in that, in reiiance on the integrity of
. _ . . the luarket, they paid artificially inflated prices for the Company stock. Plaintiffand the Class would not have purchased the Company stock at the prices they paid, or at all, ifthey had been aware that the market prices had been artificially and falsely inflated by defendants' false and misleading statements.
COUNT Il (Violations of Section 20(a) of The Exchange Act Against Defendant Merrill Lynch)
67. Plaintiff repeats and realleges cach_and every allegation contained above as if thlly set forth herein.
68. Defendant Merrill Lynch acted as a .controlling person of Blodget within the meaning of Section 20(a) of the Exchange Act.
69. By reason of such wrongful conduct, Defendant Merrill Lynch is liable pursuant to § 20(a) of the Exchange Act. As a direct and pi oximate result these delendants wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purcha.ses of Company stock during the Class Period.
WHEREFORE, plaintiff prays for relief and judgment, as follows'
(1) Determining that this action is a proper class action, designating plaintiff as Lead
Plaintiff and certifying plaintiffs as class representatives tinder Rule 23 of the Federal R..ulcs of Civil
Procedure and plaintiff's counsel as Lead Counsel;
18 (2) Awarding compensatet y damages in favor of plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to he proven at trial, including interest thereon;
(3) Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and
(4) Such oilier and further relief as the Court n-iay deem just and pro7per.
JURY 'rRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: Apiil 25, 2002
POMERANTZ HA LJDEK BLOCK GROSSMAN & GROSS LLP
Apf By. .40- Stanley I. rossman (SG-4544) Shalie.en Rustic! (SR-425() - Paul T. Curley (PC-8787)
100 Park Avenue, 26th Floor New York, New York 10017 Telephone: (212) 661-1100 Facsimile: (212) 661-8665
JAROSLAWICZ & JAROS David Jaroslawicz 150 William Street New York, NY 10038 Telephone: (212) 227-2780
Attorneys for Plaintiff
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