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CLAYTON KILE, on Behalf of Himself : and All Others Similarly Situated, : : Plaintiff, : : : MERRILL LYNCH & CO., INC

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CLAYTON KILE, on Behalf of Himself : and All Others Similarly Situated, : : Plaintiff, : : : MERRILL LYNCH & CO., INC UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK : CLAYTON KILE, on Behalf of Himself : And All Others Similarly Situated, : : Plaintiff, : : : MERRILL LYNCH & CO., INC. and : HENRY BLODGET, : Defendants. : : : Plaintiff Clayton Kile (APlaintiff@) alleges the following based upon the investigation of counsel, which included a review of United States Securities and Exchange Commission (ASEC@) filings by CMGI (the ACompany@), Lycos, Inc. (ALycos@ or ALCOS@) and uBid, Inc. (AuBid@), as well as regulatory filings and reports, securities analysts= reports and advisories about CMGI, Lycos and uBid issued by Merrill Lynch & Co. (AMerrill Lynch@), press releases and other public statements issued by Merrill Lynch, and media reports about CMGI, Lycos and uBid. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE CLAIM 1. This is a federal securities class action brought by Plaintiff against Defendants Merrill Lynch and Henry Blodget (ABlodget@) on behalf of a class (the AClass@) consisting of all persons or entities who purchased CMGI securities from March 23, 1999 through October 6, 2000, inclusive (the AClass Period@). Plaintiff seeks to recover damages caused to the Class by Defendants= violations of Section 10(b) of the Securities Exchange Act of 1934 (the AExchange Act@), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. 1. 2. This action arises as a result of the manipulation by means of deceptive and manipulative acts, practices, devices and contrivances, of the market price of CMGI securities with the intent, purpose and effect of creating and maintaining artificially high market prices. Defendants, aware of the substantial share of CMGI=s total assets represented by Lycos common stock, accomplished the manipulation of the market price of CMGI securities by issuing Merrill Lynch analyst reports regarding CMGI, Lycos and uBid that recommended the purchase of all three companies= common stock and set price targets for the common stock which were materially false and misleading, lacked any reasonable factual basis, and were contrary to the actual beliefs held by the analysts. When issuing their analyst reports, Defendants failed to disclose significant, material conflicts of interest which resulted from their use of Blodget=s reputation and his ability to influence the actions of buyers and sellers of Internet securities by issuing favorable analyst reports, in order to curry favor with internet companies and thereby to obtain their investment banking business for Merrill Lynch. 3. During the Class Period, Defendants issued favorable CMGI, Lycos and uBid analyst reports in order to obtain new and maintain existing investment banking relationships with internet companies that were incubated by CMGI or in which CMGI made strategic investments. For example, Lycos was incubated by CMGI and comprised up to 30% of CMGI=s total assets during the Class Period. uBid, whose initial public offering and subsequent offerings were underwritten by Merrill Lynch, was acquired by CMGI in the first quarter of 2000. Throughout the Class Period, Defendants maintained at least an AACCUMULATE/BUY@ recommendation on Lycos, uBid and CMGI in order to obtain and support lucrative financial deals with Lycos and uBid as well as other internet companies Merrill knew that CMGI would either acquire or make substantial strategic investments in. 4. Defendants furthered their scheme of manipulating the price of CMGI=s common stock by initiating coverage on CMGI in December, 1999 with an AACCUMULATE/BUY@ recommendation and maintaining that rating throughout the Class Period in order to maintain their lucrative financial deals with companies such as Lycos and to obtain new financial deals with internet companies incubated by, acquired by and invested in by CMGI such as uBid. 5. The Class Period runs from March 23, 1999 to October 6, 2000 inclusive. 1. 6. As demonstrated herein, Blodget=s highly-publicized reputation as an analyst of Internet companies, coupled with Defendants= positive reports and AACCUMULATE/BUY@ and ABUY/BUY@ recommendations on CMGI, Lycos, and uBid significantly and artificially inflated the price of CMGI securities throughout the Class Period. Defendants= recommendations of CMGI, Lycos, and uBid and the price targets which they set for the companies= common stock lacked a reasonable basis in fact, failed to state the true beliefs of the analysts, and were dominated and influenced by Defendants= undisclosed material conflict of interest arising out of Merrill Lynch=s desire to maintain its financial relationship with Lycos and to obtain lucrative investment banking relationships with companies, such as uBid, acquired by or invested in by CMGI. 7. On April 8, 2002, the Office of the Attorney General of the State of New York (the AAttorney General@) filed in the Supreme Court of the State of New York, County of New York an Application for an Order Pursuant to [New York] General Business Law Sec. 354 (the AApplication@), which Application named Merrill Lynch, Blodget and other past or present officers or employees of Merrill Lynch as Respondents. In support of the Application, the Attorney 3 General filed an Affidavit in Support of Application for an Order Pursuant to General Business Law Sec. 354. The Affidavit was sworn to by Eric Dinallo, Chief of the Investment Protection Bureau of the New York State Department of Law (the ADinallo Affidavit@ or ADinallo Aff.@). A copy of the Dinallo Affidavit is attached hereto as Exhibit A, and it is incorporated herein, in full by reference. JURISDICTION AND VENUE 8. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Securities Exchange Act of 1934 (the AExchange Act@), 15 U.S.C. '78aa, and 28 U.S.C. '1331. This action arises under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. '78j(b) and '78t(a), and the rules and regulations promulgated thereunder, including SEC Rule 10b-5, 17 C.F.R. 240.10b-5. 9. Venue is proper in this District pursuant to Section 27 of the Exchange Act (15 U.S.C. '78aa) and 28 U.S.C. '1391(b) and (c). Substantial acts in furtherance of the alleged fraud and/or its effects have occurred within this District and Merrill Lynch maintains its principal executive offices in this District. 10. In connection with the facts and omissions alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications, and the facilities of the national securities markets. 1. PARTIES 4 11. Plaintiff Clayton Kile acquired CMGI securities, as set forth in the attached certification, and was damaged thereby. 12. Defendant Merrill Lynch has its headquarters located at 4 World Financial Center, 250 Vesey Street New York, New York. Defendant Merrill Lynch is the largest securities broker in the United States and maintains multiple offices in this District. Merrill Lynch claims to be one of the world=s leading financial management and advisory companies with offices in 44 countries and total client assets of about $1.6 trillion. As an investment bank, Merrill Lynch claims to be the top global underwriter and market maker of debt and equity securities and a leading strategic advisor to corporations, institutions, and individuals worldwide. 13. Defendant Blodget was at all relevant times an Internet stock analyst and First Vice President of Merrill Lynch. In the Fall of 2001, Merrill Lynch asked Blodget to resign by offering him a buy-out offer which would pay Blodget approximately $2 million. On November 14, 2001, it was announced that Blodget was resigning as an Internet analyst at Merrill Lynch. SUBSTANTIVE ALLEGATIONS Background 14. Since 1999, the internet research analysts (the AInternet Group@) at Merrill Lynch have published, on a regular basis, ratings for internet stocks, including CMGI, Lycos, uBid that were materially false and misleading because: (1) the ratings in many cases did not reflect the analysts= true opinions of the companies; (2) no Areduce@ or Asell@ recommendations were issued as a matter of undisclosed, internal policy, thereby converting a published five-point rating scale into a de facto three-point system; and (3) Merrill Lynch failed to disclose to the public that 5 Merrill Lynch=s ratings were tarnished by an undisclosed material conflict of interest: the research analysts were acting as quasi-investment bankers for the companies at issue, often initiating, continuing, and/or manipulating research coverage for the purpose of attracting and keeping investment banking clients, thereby producing misleading ratings that were neither objective nor independent, contrary to Merrill Lynch=s representations to the public. 1. 15. There was a serious breakdown of the separation between the Merrill Lynch banking and research departments, a separation that was critical to the integrity of the recommendations issued to the public by Merrill Lynch. Merrill Lynch=s stated policies reflect an understanding that this separation is crucial. In describing such separation breakdowns during a Congressional hearing on July 31, 2001, Chairman Richard H. Baker of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, commented: Maybe there hasn=t been a complete erosion in the Chinese walls that traditionally shield analysts from investment
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