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.

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.

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.

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 banking interests. But I have to say that I believe there are some folks out there manufacturing a lot of Chinese ladders for people to climb back and forth over those walls as they deem appropriate.

Analyzing the Analysts: Hearings Before the Subcomm. on Capital Markets, Insurance, and Government Sponsored Enterprises of the House Comm. on Financial Services, 107th Cong. 117 (2001) (statement of Chairman Richard H. Baker).

16. The pressure put on the Merrill Lynch Internet Group to appease both investment bankers and potential investment banking clients led the group to ignore the bottom two categories of the five-point rating system (Areduce@ and Asell@) and to use only the remaining ratings

(Abuy@, Aaccumulate@ and Aneutral@). The absence of clear guidance from Merrill Lynch management on how to resolve the conflicts created by these pressures led Blodget, the head of the

6 Internet Group, in an internal Merrill Lynch e-mail,1 to threaten to Astart calling the stocks (stocks, not companies)... like we see them, no matter what the ancillary business consequences are.@

The Internet Group=s Stock Ratings Were Misleading

17. Merrill Lynch and Blodget rated internet stocks, including CMGI, Lycos, and uBid both for Intermediate-Term and Long-Term growth as follows: BUY/BUY (1-1),

ACCUMULATE/BUY (2-1), ACCUMULATE (2-2), NEUTRAL/BUY (3-1) and NEUTRAL (3-2).

Although Merrill Lynch=s published rating system provided for 4s (reduce) and 5s (sell), the internet group never used 4s or 5s. The list of covered internet stocks for the second quarter of

2000, for instance, lists 24 stocks, none of which was rated less favorably than a 2. From the spring of 1999 to the fall of 2001, Merrill Lynch never published a single reduce or sell rating on any stock covered by the internet group. In sworn testimony, both Blodget and his subordinate, Kirsten

Campbell, confirmed that the group never rated a stock 4 or 5. Thus, although represented to be a five point system, it was in actuality a three-point system.

18. Defendants represented that their Ratings Criteria for the combined Intermediate-

Term and Long-Term ratings on all of the Internet stocks that they rated, including CMGI, Lycos, and uBid were as follows:

BUY/BUY (1-1)

C Dominant leader with a clean story in a sector with strong growth prospects C Profitable or on a clear path to profitability within 2-3 quarters (in the more mature sectors) C Strong cash position: enough to reach profitability with plenty left over for discretionary

1 References to sworn testimony and internal Merrill Lynch e-mails are based upon testimony taken and documents received by the New York State Attorney General in connection with his investigation of Merrill Lynch.

7 investment C Valuation attractive, or at least justifiable, on a multiple of visible earnings or cash flow (Aexpensive@ is okay, if fundamentals remain strong) C Stock that we believe has a high likelihood of appreciating more than 20% within a year C High level of conviction about sector, company, management, and stock

ACCUMULATE/BUY (2-1)

C Strong company with good growth prospects in a promising sector, or dominant sector leader with issues that we expect to be resolved C Profitable or on a clear path to profitability within the next 12-18 months (again, in the more mature sectors) C Solid near-term cash position B enough to reach profitability C Valuation justifiable on a multiple of visible earnings or cash flow, or too expensive to be a 1-1 C Stock that we believe has a high likelihood of appreciating more than 20% in 1-2 years

ACCUMULATE (2-2)

C Good growth prospects C Improving financial performance C Valuation justifiable C Some uncertainties or reservations remain

NEUTRAL/BUY (3-1)

C Significant issues relating to intermediate-term outlook C A business model which we believe fundamentally Aworks@ C Long-term should be okay

NEUTRAL (3-2)

C Challenging sector, or growth rate less than sector growth rate C Not yet clear when able to turn profit C Needs additional cash to turn profitable C Significant uncertainties or reservations remain

19. Defendants maintained their policy and practice of not rating a stock a 4 or a 5 because it would have jeopardized Merrill Lynch=s efforts to maintain and obtain investment banking and underwriting engagements and fees from internet companies if Defendants had given

8 stocks of internet companies a rating or recommendation of less than AACCUMULATE/BUY.@

The Internet Research Group and the Investment Banking Group Were Not Independent of Each Other

20. Blodget earned many millions of dollars as Merrill Lynch=s premier analyst of

Internet stocks. Merrill Lynch paid him in excess of $5 million in 2000 and approximately $12 million in 2001.

21. The Internet research analysts were far from independent of their investment banking colleagues. This relationship drove both the selection of covered stocks and the ratings ultimately assigned to those stocks.

22. The compensation system for internet analysts was a significant factor contributing to the breakdown between the Internet Group and the investment banking department. Research analysts knew that the investment banking business they generated or participated in would impact their compensation, and management encouraged them to produce investment banking business.

Analysts generated goodwill with potential or actual investment banking clients by giving them special treatment. At times, officers of clients or prospective clients were allowed to redraft their own coverage, write quotations in which the analysts would tout their companies, and indicate which ratings would be acceptable to them. Indeed, research analysts at Merrill Lynch were actively involved in evaluating and effectuating investment banking transactions. Moreover, analysts= compensation was tied to the success of these efforts.

23. The analysts in the Internet Group at Merrill Lynch knew that investment banking business translated into compensation for them personally and the firm generally, and that their research played an important role in attracting and keeping that investment banking business. In

9 one revealing e-mail exchange, a Merrill Lynch analyst and investment banker discussed how best to attract investment banking business of a company from a competitor. The banker proposed a formula that had apparently worked in the past with another banking client: Awe should aggressively link coverage with banking - that is what we did with Go2Net (Henry [Blodget] was involved) ....[I]f you are very bullish (b/c they will love you), they are not happy with GS [Goldman

Sachs] and are going to be active, we can probably get by on a >handshake.@= (ML 05229-30).

This e-mail blatantly sets forth Merrill Lynch=s intention that the prospect of favorable research reports be used to attract investment banking clients.

24. Blodget was so highly paid by Merrill Lynch because his reputation in the investment community as one of the preeminent analysts of Internet stocks enabled Merrill Lynch to obtain investment banking engagements and the lucrative investment banking fees from those engagements.

25. One way Blodget Aprioritize[d]@ research coverage for stocks was whether the company had an investment banking relationship with Merrill Lynch. (Blodget Tr. at 207-08).

Consistent with this agenda, Blodget, within weeks of joining Merrill Lynch as head of the internet research group, distributed a memorandum entitled, AManaging the Banking Calendar for Internet

Research,@ which he sent to Merrill Lynch=s Co-Heads of U.S. Equity Research, and senior investment bankers. The memorandum unapologetically described Blodget=s expectation that at least 50 percent of his and his team=s time would be allocated to investment banking matters. In addition to discussing Abanking transactions [] in the pipeline@ and Apromising deals,@ the

10 memorandum described Blodget=s work schedule for one week as being divided A85% banking,

15% research.@ (ML 34660-61).

26. The research analysts= objectivity and independence were further eroded by the fact that their compensation depended in part on their efforts on behalf of investment banking, as demonstrated by the following Fall 2000 request from respondent Deepak Raj, then Merrill

Lynch=s co-head of global equity research, to all equity analysts:

AWe 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 research coverage played a role in origination, execution and follow-up. Please note, as well, your involvement in advisory work on mergers or acquisitions, especially where your coverage played a role in securing the assignment and your follow-up marketing to clients. Please indicate where your research coverage was pivotal in securing participation in high yield offering.@

27. On November 2, 2000, Blodget and the internet research group responded to the above request. In a detailed memorandum with schedules, entitled AIBK Contributions: Internet

Team.@ Blodget stated that: (a) his group had been involved in over 52 completed or potential investment banking transactions; (b) the completed transactions had earned $115 million for the firm; and (c) more transactions would have been completed had not the Amarket window for most internet companies closed in June.@ He also identified the services his analysts typically performed for investment banking, including pitching the client, marketing the offering and, notably, initiation and follow-on research coverage. (ML 09544-51, see also ML 33856). Shortly after documenting these contributions, Blodget=s salary contract was cancelled and replaced with a substantially larger compensation package. Overall, Blodget=s annual compensation, including

Aguaranteed@ minimum cash bonus, increased from $3 million for 1999 to $12 million for 2001.

11 28. Additionally, Merrill Lynch=s stock analysts, including Blodget, participated in a bonus pool which is funded, in part, with investment banking fees received by Merrill Lynch.

29. As attested to in the Dinallo Affidavit:

Tension between the various departments in a single firm is nothing new. At a securities firm, this tension is usually addressed by the establishment of a AChinese Wall@ B an internal relationship barrier by which investment bankers are prevented from sharing with other firm employees material, non-public information received by the bankers from their publicly-traded company clients. Thus, a banker generally should be barred from discussing such inside information with a research analyst who is disseminating to the public a research report on the same company. Another form of AChinese Wall@ attempts to prevent investment bankers from influencing analysts= ratings for the stock of existing or potential investment banking clients.

The compensation structure of a securities firm can exacerbate the potential for an analyst to be conflicted. Where analysts= compensation is affected, directly or indirectly, by the analysts= contribution to investment banking, analysts= objectivity and independence can be seriously eroded.

(Dinallo Affidavit at 14)

30. The Dinallo Affidavit also revealed that:

Merrill Lynch=s Policies and Procedures Manual for the Research Department (ML 02039, 02049) does not address the conflict raised by the compensation issue. Indeed, research analysts at Merrill Lynch were actively involved in evaluation and effectuating investment banking transactions. Moreover, analysts= compensation was tied to the success of their efforts in this regard.

(Dinallo Affidavit at 14)

31. Plaintiff alleges, as attested to in the Dinallo Affidavit:

Analysts conveyed to one another that they would Awin brownie points@ from investment banking if the investment bankers could assure a company that the analysts would cover its stock. (ML 99103). Implicit in this was that Acoverage@ would always be favorable. Bankers, in turn, attempted to use the analysts to move the price of a stock to a level where research could be initiated, and so fulfill the promise of research coverage in exchange for banking work. One banker who was frustrated by a stock=s failure to reach the requisite price level of $10 before

12 coverage could commence, implored the internet group to let the company speak at the group=s upcoming conference that would be attended by many institutional investors B to promote Merrill Lynch=s Aactive banking agenda@ with the company and alleviate the company=s unhappiness with the Aresearch tie up@ at Merrill Lynch. (ML 29750).

(Dinallo Affidavit at 16-17).

32. Plaintiff alleges, as attested to in the Dinallo Affidavit:

Investment banking also was involved in criticizing and editing the internet group=s reports for client companies, opining on whether a particular rating would be acceptable and, in at least one instance, apparently opposing a proposed rating because A[there is no] interest in seeing initiation [of research coverage] at a 3-2 [rating].@ (ML 03799). Analysts openly discussed the conflict in e-mails, stating Athe whole idea that we are independent from banking is a big lie B without banking this would be [rated] a 3-2.@ (ML 09045).

33. Plaintiff alleges, as attested to in the Dinallo Affidavit:

Merrill Lynch did not disclose to the public that the internet group shared B and at times appeared even to negotiate B proposed ratings with the bankers and companies at issue, in clear violation of Merrill Lynch policy that analysts Amay not disclose proposed investment conclusion@ to company management. (ML 02054). Indeed, Blodget claimed not to even know of this prohibition. (KC013). The results are intensely problematic: in one instance, a company agreed to a particular rating under the condition that its main competitor=s stock would be downgraded to that same rating. It clearly violates Merrill Lynch=s internal policies and illustrates that the subsequent ratings were biased when a company is given advance notice of its stock rating and a voice in a competitor=s downgrade. (ML 09061). In another e-mail, an analyst reported that management of a company Ado[es] not feel comfortable with us launching coverage of their stock...until [we]...[can] come out w[ith] a buy rating.@ (ML 63362). The internet group even contemplated giving coverage to a stock simply as an Aaccommodation for an important client,@ but only for six months, after which coverage would be dropped. (ML 36662)

(Dinallo Affidavit at 22)

34. An example of the manner in which Merrill Lynch would use Blodget to sell its investment banking and underwriting services to Internet companies and Defendants= awareness of

13 the conflicts of interest which that created and the fact that they were not satisfactorily addressing those conflicts of interest, was reported in the April 2, 2000 Washington Post. In that article, in which the reporter followed Blodget through two workdays, the following was reported:

Megan Smith, the chief executive of the gay site PlanetOut, stops by to visit Blodget.

Merrill is in the running to do the underwriting for the site=s initial public offering, which makes this another conflict. If Merrill gets the job, Blodget will later be issuing reports on PlanetOut, and when was the last time an analyst was less than upbeat about a company his firm just underwrote?

* * *

Blodget admits that, for many analysts, AThere=s certainly a tendency to give the company a benefit of the doubt.@ But he argues that Athe best analysts find a way of balancing the needs and wants of their constituencies. It=s like being a good politician.@

David Streitfeld, Analyst with a Knack for Shaking up Net Stocks; Henry Blodget is Wall Street=s Link between Online Firms, Investors, Wash. Post, Apr. 2, 2000, at H1.

Blodget=s Reputation

35. Prior to and throughout the Class Period, Blodget was repeatedly recognized in the financial and regular media as a preeminent analyst of Internet companies. Blodget was repeatedly the subject of newspaper and magazine articles and references, and he appeared repeatedly on business-oriented television programs. As demonstrated below, Blodget assumed virtual Acelebrity status@ which increased the influence and impact of his analyst reports, including his analyst reports regarding CMGI, Lycos, and uBid. In 1999 and 2000, Blodget appeared on television at least 77 and 46 times, respectively, often on CNBC and CNN.

36. Blodget=s fame and extraordinary influence as an analyst of Internet companies began on December 16, 1998, when, while an analyst at CIBC Oppenheimer, he set a Atarget@

14 price for Amazon.com of $400 per share. The circumstances of that prediction are described in the

April 2, 2000 issue of the Washington Post as follows:

...it...took his bold move with Amazon to make him a household name in the world of Internet stockholders. The retailer was at its most controversial then, full of swaggering ambition and bleeding red ink. It was also a hot stock, one that had doubled and redoubled. Two months earlier Blodget had put a 12-month price target of $150 on it. The stock quickly breezed by that to close on Dec. 15 at $242.

So he set an Aoutlandish@ new target - $400. AI was trying to say, >Stop asking me the price target. There=s plenty of upside,=@ he says. ABut it was like I threw gasoline on a bonfire.@

* * *

A Bloomberg News reporter got a tip on Blodget=s aggressive forecast, and wrote a story about it. A couple of minutes later, CNBC picked up the story, noting Amazon stock was already up $10 in early-hours trading. A few minutes after that it hit the chatboards, provoking hundreds of messages during the course of the day.

At 9:30 a.m., the market opened with Amazon at $259, up $17. It continued rising all day, the commentary making the stock climb, which in turn provoked more commentary. It was as if Blodget had been understood to say Amazon was going to go to $400 that day.

The stock closed at $289, up nearly 20 percent, on quadruple its normal volume. Those who thought Amazon was worthless seemed personally insulted by the rise. Jonathan Cohen, at the time the Merrill Lynch Internet analyst, said the stock was worth less than a quarter of its current price.

On Jan. 6, 1999, Amazon closed at $138. Since it had split three-for-one in the meantime, that works out to be $414. The stock had done in three weeks what Blodget had said would take a year. The next month, Blodget replaced Cohen at Merrill Lynch, for a salary he declines to discuss but is reported to be $4 million.

The events still bemuse him. He quotes Jay McInerney, who explained how he abruptly became famous with his novel ABright Lights, Big City@ in 1984: AI plucked the chords of the Zeitgeist.@

* * * AThe reason stocks move is not because they=re cheap or expensive,@ Blodget

15 says. AIt=s because there=s an imbalance of supply and demand. Stocks don=t move on valuation.@

* * *

AOur job is not to be stock pickers, but to be correct on trends, and help investors pick stocks,@ he said. AThere=s a significant difference.@

Id.

37. Blodget=s celebrity status included regular appearances on television programs concerning the financial markets, programs which had great influence on the financial markets and the prices of the stocks discussed on those programs. As was reported in the March 15, 1999 issue of The Wall Street Journal:

The pros keep an eye not just on their banks of quote machines, but also on television screens. AIn my fixed-income trading room and my stock trading room, CNBC is on all during the day,@ says Henry Herrmann, chief investment officer at Overland Park, Kan., mutual fund group Waddell & Reed. He put in televisions two years ago, when he was upgrading the bond trading room. AIt is just another tool but it is a tool,@ he says. When Prudential=s Mr. Acampora turned bearish in August and CNBC relayed his warning of a sharp market drop, the prediction proved self-fulfilling and helped push stocks down. The experience indicated that, at the right time, television appearances by any of a variety of market players can hit the market just as hard as a warning from the Fed=s Mr. Greenspan. And television can turn once-unknown analysts, such as Merrill=s Mr. Blodget, into instant celebrities.

E.S. Browning, Abreast of the Market: What Moves Markets: New Forces Are Now Powering Surging Stocks: Ordinary Joes Move Market Toward Dow 10,000 Mark with Aid from TV Internet, Wall St. J., Mar. 15, 1999, at C1.

38. The October 4, 1999 issue of Time Magazine reflected Time Magazine=s choice of its ADigital 50 B The Most Important People Shaping Technology Today.@ The first three members of Time Magazine=s ADigital 50" were Jeff Bezos, the founder of Amazon.com; Steve

Case, the founder of America Online and Bill Gates, the founder of Microsoft. Henry Blodget was

16 one of Time Magazine=s ADigital 50" and Time Magazine described him as follows:

Henry M. Blodget The Forecaster, Merrill Lynch Senior Internet and e-commerce analyst, Age: 32, Web: www.ml.com

It takes a certain cachet to make financial-market types swoon. Henry Blodget, arguably the most influential voice on Internet stocks in the world, is so hot right now that his late arrival to a recent bigwig luncheon prompted this announcement: AElvis has entered the building.@ The 1989 Yale grad was a managing director and senior Internet analyst at CIBC Oppenheimer when he made the call that shot him into the spotlight and one of the most prestigious jobs on Wall Street.

Amazon.com=s share price was hovering around $200; pundits were proclaiming that the party was over. But Blodget remained bullish on the online bookseller and said the stock would hit $400 in 12 months B and then it hit the stratosphere. By March, he was at Merrill B and he=s been getting the kind of attention shown in those old E.F. Hutton ads ever since.

Maryanne Murray Buechner et al., Digital 50: The Most Important People Shaping Technology Today, Time, Oct. 4, 1999, at 25.

39. In its June 29, 1999 issue, The Wall Street Journal named Henry Blodget as one of three all stars in its AAll-Star Analysts 1999 Survey: Internet.@

40. Blodget=s reputation as an analyst of Internet stocks in the investment community was demonstrated by his being placed on Institutional Investor=s Third Team for its 1999 All-

America Research Team. This was reported in the October 1999 issue of Institutional Investor.

That award was the product of a poll which Institutional Investor conducted, which it described as follows:

To select the members of this year=s All-America Research Team, Institutional Investor sent questionnaires covering 90 industry groups and investment specialties to the directors of research and chief investment officers of major money management institutions. Included were those managers on our rankings of the largest institutions in the U.S. (Institutional Investor, July 1998), as well as other key U.S., European and Asian investors. Directors and industry data sources were tapped to ensure that the survey universe was complete, and many Wall Street

17 research directors submitted a list of their key institutional clients, many of whom were also contacted. In addition, questionnaires were sent directly to analysts and portfolio managers at many top institutions. In total we mailed ballots to nearly 725 institutions.

The 1999 All-America Research Team, Institutional Investor, Oct. 1999, at 109.

41. In its October 2000 issue, Institutional Investor named Blodget to the AFirst Team@ of its 2000 All-America Research Team in two categories: New Media and E-Commerce. In that article, Institutional Investor articulated the analysts= conflicts of interest, between objective analysis and the investment banking business of their employers:

In tough times equity analysts ought to be able to add value by steering clients clear of deteriorating companies and putting them in safer stocks that will out perform. But they can=t if they are too busy serving the needs of their constituencies. For years, investors have muttered about the increasing amount of time analysts spend hustling banking business B compromising the quality of research while dramatically boosting their annual pay packages. This year, with equity markets sagging and the M&A and underwriting businesses soaring, the muttering has become an outcry. AAnalysts must bring in deals, and there is an inherent conflict of interest there,@ says Andrew Barth, director of U.S. research for Capital Guardian Trust Co. AQuality becomes a function of the deal calendar. It=s only natural that the credibility of sell-side research falls as banking steps up.@

One veteran portfolio manager puts it more bluntly: AThese guys are selling their souls for investment banking. Today I would just like to work with one intellectually honest analyst.@

The 2000 All-America Research Team, Institutional Investor, Oct. 2000, at 57.

42. In the spring of 2001, Merrill Lynch placed a two-page advertisement in a weekly trade publication headlined ATechtelligence.@ In the advertisement, Merrill Lynch touted the capability of Merrill Lynch=s technology group, including the 100 analysts who cover 500 companies and the awards its analysts have won, including Merrill Lynch=s AInternet Guru@

18 Henry M. Blodget.

43. The extraordinary extent of the exposure which Blodget received in the print and television media was reported in the June 5, 2000 issue of The Industry Standard, The News

Magazine of the Internet Economy, in an article entitled AHolding Analysts Accountable. Investors following stock recommendations are often in the dark about Wall Street analysts= conflicts of interest. Regulators aren=t happy.@ In that article it was reported that in the preceding year

Blodget had been cited in the press on 1,072 occasions which was more than any of the other listed analysts, venture capitalists and Internet chief executive officers surveyed. Blodget was cited in the media 80% more than the two next highest people surveyed B Meg Whitman, the Chief Executive

Officer of eBay, and Mary Meeker, Morgan Stanley Dean Witter=s Internet analyst.

44. The extraordinary extent of the exposure which Blodget received in the print and television media was also reported in the March 12, 2001 issue of the Washington Post. The article reported as follows:

Henry Blodget, Wall Street=s loudest cheerleader for Internet stocks, made it to the front page of the New York Times last week. And thereby hands a tale about the media and the bubble.

The Merrill Lynch analyst rode a tidal wave of publicity as the Net stocks he was touting soared toward the stratosphere. Now that his top recommendations have plunged 79 percent B including eToys and Pets.com, both of which have shut down B the Times says Blodget and others like him go Aa long way toward explaining why the market for technology stocks has since crashed.@

* * *

From the day he burst into the headlines in December 1998, Blodget has been mentioned 95 times in the Wall Street Journal, 66 times in the New York Times, 53 times in The Washington Post (which ran a 3,800 word profile of him last year) and 27 times in Business Week. Just since the beginning of last year, he has been

19 mentioned (or interviewed) on television 816 times, a Nexis database search finds.

Howard Kurtz, Who Blew the Dot-Com Bubble?; the Cautionary Tale of Henry Blodget, Wash. Post, Mar. 12, 2001, at C01.

The Substantial Impact of Blodget=s Recommendations on the Price of Internet Stocks Was Generally Recognized in the Financial Media

45. An article entitled AStocks Slump as Investors Take Profits@ in the August 19,

1999 New York Times, reported as follows:

A surprisingly strong earnings report by Dell Computer and a recommendation of eight Internet stocks by Merrill Lynch=s influential analyst, Henry Blodget, helped keep the Nasdaq average in positive territory most of the day before it, too, slipped and ended down 13.49 points, or five-tenths of 1 percent, to 2,657.73.

* * *

Mr. Blodget, the Merrill Lynch analyst, recommended eight Internet stocks he saw as benefitting from this year=s holiday shopping season, perhaps tripling revenue from on-line sales and advertising. He predicted the shares, which Aoffer a sound way to play the fundamental strength and renewed investor enthusiasm@ expected in coming months, would surge 50 percent to 100 percent by year-end.

All his picks rose. Amazon.com jumped 3 7/8 to 113 1/8; America Online 1 11/16 to 99 3/16, and Yahoo 6 3/16 to 15 1/16. His other picks were eToys, ICG@Home, Lycos, Inktomi and Barnesandnoble.com.

Robert D. Hershey Jr., The Markets: Stocks; Stocks Slump as Investors Take Profits, N.Y. Times, Aug. 19, 1999, at C1.

46. On the same day, August 19, 1999, in The Wall Street Journal=s AHeard on the

Street,@ it was reported as follows:

...electronic-commerce stocks got a sudden boost yesterday after Merrill Lynch analyst Henry Blodget told clients in a conference call that he believes sentiment is turning back toward those issues...

AWe are throwing our hat into the ring,@ Mr. Blodget said. He advised buying some down-and-out Internet retailers, including Amazon.com, Barnesandnoble.com

20 and eToys, along with service providers such as America Online and Yahoo!, on the theory that they will benefit from a strong back-to-school and holiday season.

AThis has been a rocky summer for this sector. But if you are committed to holding until December and you buy them until this level, you=ll probably make significant money,@ Mr. Blodget said. He even put together a Aholiday basket@ with eight Internet stocks he thinks will Abenefit disproportionately from strength@ in the sector later this year. His list included not only Yahoo, Amazon.com, America Online and Barnesandnoble.com, but also eToys, Lycos, ICG, Excite At Home and Inktomi.

Mr. Blodget=s picks got a lift yesterday amid an overall rally in Internet stocks. Yahoo closed at 145.0625, up 6.1875; Inktomi closed at 119, up 3; Amazon.com closed at 113.125, up 3.875.

Susan Pulliam & Terzah Ewig, Heard on the Street: Next Wave: Web-Gear Firms Show Signs of Inheriting that >Internuts= Mania, Wall. St. J., Aug. 19, 1999, at C1.

47. In a January 12, 2000 article in The Wall Street Journal entitled AHuge Price-Target

Boosts Lifted Web Stocks; Now Analysts Try Same Move in Other Sectors,@ the effect of

Blodget=s huge price targets on the price of the stocks he covered, and Blodget=s own view of those price targets, was described as follows:

There is nothing that jump-starts an Internet stock like a big price-target boost by a Wall Street analyst...

* * *

There is nothing too risky about sticking an eye-popping price target on a stock anymore either. Everyone laughed last year when Merrill Lynch=s Henry Blodget nearly doubled his price target for Amazon.com, then trading at 230 a share, to 400. (The stock has since split.) The move looked pretty smart, however, within just weeks, and Mr. Blodget is now one of the highest paid Internet analysts on Wall Street.

Says Mr. Blodget: AIf you are looking at stocks with this kind of volatility, you need extreme returns to justify the risk.@ Further, he says, Aa lot of analysts are just measuring reality and giving investors a sense of where a stock might go.@

21 * * *

AThe quick reaction to price targets is being driven by thinly traded stocks and an incredible amount of retail money that, when they see a new price target, they drive the stock there and past it,@ he says...

Susan Pulliam, Heard on the Street: Huge Price-Target Boosts Lifted Web Stocks; Now Analysts Try Same Move in Other Sectors, Wall St. J., Jan. 12, 2000, at C2.

48. An article in the May 23, 2000 Wall Street Journal, reported as follows:

The biggest chuck of the recovery in the session took place in the beleaguered Internet camp. Shares of eBay (Nasdaq), weakened in intraday trading, turned around, ending the session 18 points better at 136 3/16. The reversal came after the online auction concern=s chief executive, Meg Whitman, continuing to campaign for the company=s stock, which has fallen sharply from its March highs, spoke with Merrill Lynch Internet analyst Henry Blodget on an investment program Merrill conducted on the Internet.

Robert O=Brian, Abreast of the Market: Technology Stocks, Led by Sun, Adobe, Recover From Day=s Lows, Wall St. J., May 23, 2000, at C2

49. On July 14, 2000, The Wall Street Journal published an article regarding the investment bankers who underwrote Internet initial public offerings, and the astonishing rise, at least temporarily, in the price of those shares:

The bankers got help in feeding the furnace from a new breed of mostly young securities analysts who presented themselves as pathfinders in the uncharted terrain of the Internet.

The best-known is Henry Blodget, famous for forecasting in December 1998 that Amazon.com would hit $400 a share within 12 months. At the time, Amazon.com was trading at $240; within four weeks it blew past $400 on its way to a high of more than $600. Mr. Blodget was celebrated as a seer and left his job at CIBC Oppenheimer for Merrill Lynch & Co. Amazon.com? It closed at a split-adjusted $35 yesterday, equivalent to $210 at the time of Mr. Blodget=s big call.

* * *

Still, to critics, Mr. Blodget epitomizes the change in the analyst=s role during the

22 overheated market in tech stocks: more cheerleader than detached observer. And the buzz B and the career opportunities B that Mr. Blodget did draw may have encouraged other analysts to make similarly adventurous forecasts, the critics add.

Despite Mr. Blodget=s 75% caveat, his recommendations on individual stocks, like those of many Internet analysts, got more bullish even as they led the Nasdaq Composite Index to ever-more-dizzying heights. Today, he rates 12 of the 27 stocks that he follows as Abuy@ (the rest are Aaccumulate@), compared with just one buy rating for the 10 stocks he followed a year ago, says Bob Kim, a former Merrill Lynch supervisory analyst whose Web site, Restex.com, monitors Merrill technology research.

Consider Pets.com Inc., which Merrill took public at $11 in February. It slid to $6.125 in a month, when Mr. Blodget initiated coverage with a prediction that it would soar to $16 a share, or 160%, in 12 to 18 months. A major justification: Despite the pet supply seller=s continuing losses, he noted that it was trading at five times this year=s estimated revenue, a discount to Amazon.com at eight times revenue. Since Mr. Blodget=s prediction, Pets.com has been a dog, falling 70% to $1.8125.

Greg Ip et al., The Color Green: the Internet Bubble Broke Records, Rules and Bank Accounts; Wall Street and Allies Built $1.4 Trillion Monument to Fast-Money Madness; Waiting for the >Big Kahuna=, Wall St. J., July 14, 2000, at A1.

Defendants Had a Policy and Practice of Never Giving the Stock of an Internet Company a Rating or Recommendation Other Than ABUY/BUY@ or AACCUMULATE/BUY@

50. From the time that Blodget began his employ at Merrill Lynch, as an Internet analyst, in February 1999, through the end of the Class Period of this complaint, Blodget and Merrill had the policy and pursued the practice of never giving the stock of an Internet company, including

CMGI, Lycos, and uBid a rating or recommendation other than ABUY/BUY@ or

AACCUMULATE/BUY.@

51. Defendants maintained that policy and practice because it would have jeopardized

Merrill=s efforts to obtain investment banking and underwriting engagements and fees from

23 Internet companies if Defendants had given stocks of such companies a rating or recommendation of less than AACCUMULATE/BUY.@

52. The lack of candor with which Defendants wrote and issued their reports on Internet companies, and particularly Defendants= uniform practice prior to and during the Class Period, of never publishing a rating or recommendation for an Internet stock other than ABUY/BUY@ or

AACCUMULATE/BUY,@ is demonstrated by the way in which Defendants ceased coverage of an

Internet company. Specifically, when Defendants made the decision to cease issuing analyst reports regarding a particular Internet company, which could have been because they no longer saw any potential to obtain investment banking or underwriting fees as a result of that coverage, Defendants did not advise the investing public of that decision. Despite the fact that they had previously been recommending the purchase of a company=s stock, Defendants would provide no guidance as to what investors should do with their stock holdings; rather, Defendants, without notice or explanation, would no longer issue reports regarding that stock.

53. According to the Dinallo Affidavit, the New York Attorney General=s investigation revealed that:

Although Merrill Lynch=s published rating system provided for 4s (reduce) and 5s (sell), the internet group never used 4s or 5s. The list of covered internet stocks for the second quarter of 2000, for instance, lists 24 stocks, none of which is was rated less favorably than a 2. (ML 03747). From the spring of 1999 to the fall of 2001, Merrill Lynch never published a single reduce or sell rating on any stock covered by the internet group. In their sworn testimony, both Blodget and his subordinate, respondent Kirsten Campbell, confirmed that the group never rated a stock a 4 or 5. (Blodget Tr. at 115-19; Campbell Tr. at 36). Thus, although represented to be a five- point system, internally it became a three-point system. In lieu of assigning reduce or sell recommendations to stocks they no longer favored, the internet group instead merely quietly stopped covering the stock, without any announcement or meaningful explanation to the retail public. (ML 87610).

24 (Dinallo Affidavit at 9)

54. The Dinallo Affidavit concluded that the reason for this failure to disclose was, at least in part, Athe substantial unrevealed conflict of interest@ involving Merrill Lynch=s research analysts acting as quasi-investment bankers for the companies at issue, often initiating, continuing, and/or manipulating research coverage for the purposes of attracting and keeping investment banking clients, thereby producing misleading ratings that were neither objective nor independent, as they purported to be. (Id. at 10)

Relationship Between CMGI and Lycos

55. CMGI is a diversified internet operating and development company. The company=s business strategy focuses on both the development, acquisition and operation of majority-owned subsidiaries as well as strategic investments in other internet companies through

CMGI=s venture funds.

56. Defendants= scheme to artificially inflate and maintain the stock prices of internet companies during the Class Period had the impact of artificially inflating the price of CMGI securities causing shareholders to pay prices for CMGI that they would not have paid had

Defendants issued truthful recommendations regarding said internet companies. Defendants= representations regarding Lycos artificially inflated the price of Lycos securities which in turn inflated the price of CMGI securities since the majority of CMGI=s reported total assets during the

Class Period were comprised of the value of its holdings in other internet companies.

57. Further, Defendants, aware of CMGI=s business model and aggressive growth strategy through both acquisitions and strategic investments, issued unsubstantiated

25 recommendations of CMGI stock in order to maintain existing, and to forge new, lucrative financial deals with internet companies acquired by or invested in by CMGI.

58. In 1994, CMGI owned approximately 100% of Lycos. On April 2, 1996, Lycos had an initial offering of 3,000,000 shares of common stock at $16.00 per share. This initial offering reduced CMGI=s ownership of Lycos to 58%. CMGI maintained at least a 50% ownership in

Lycos until October 1997. During that time, the investment and development segment of CMGI's operating results included Lycos' operating results and Lycos' assets and liabilities are reported together with assets and liabilities of CMGI's other majority owned subsidiaries in CMGI's consolidated balance sheets.

59. On July 29, 1998, Lycos had a secondary offering, in which Defendant Merrill participated as an underwriter, of 2,250,000 shares.

60. As a result of CMGI=s sale of Lycos shares during January, 1999, CMGI=s ownership in Lycos fell below 20% of Lycos= outstanding shares. As a result in the decline of ownership below 20%, CMGI began accounting for its investment in Lycos as available-for-sale securities.

61. CMGI=s Annual Report for FY 1999, ended July 31, 1999, reported that net revenues from CMGI=s internet segment increased $22,586,000, or 121%, to $41,295,000 in 1999 over fiscal 1998. This increase included Lycos= net revenues of $9,303,000. CMGI further reported that it believed its subsidiaries would continue to develop and look to expand into new market opportunities and that CMGI had signed agreements to acquire nine additional internet

26 companies.

62. CMGI=s Annual Report for FY 1999, further reported total assets of $2,057,334,000 and available-for-sale securities of $1,532,237,000, or 74.5% of its total assets. On July 31, 1999,

CMGI=s available-for-sale securities consisted of common stock investments, carried at fair value and based on quoted market prices, net of a market value discount to reflect any remaining restrictions on transferability. At close of FY 1999, CMGI held 13.1 million shares of Lycos, valued at $542,000,000, or 26% of CMGI=s total assets.

63. In the first quarter of FY2000, ended October 31, 1999, CMGI reported total assets of $2,626,774,000. CMGI?s holdings of Lycos common stock, reported as available-for-sale securities, were valued at $693,000,000, thus again representing 26% of CMGI=s total reported assets.

64. In the second quarter of FY2000, ended January 31, 2000, CMGI reported total assets of $3,487,813,000. CMGI?s holdings of Lycos common stock, reported as available-for-sale securities, were valued at $947,000,000, increasing to represent 27% of CMGI=s total assets.

65. At the end of the third quarter of FY2000, ended April 30, 2000, CMGI reported total assets of $2,364,877,000. CMGI?s holdings of Lycos common stock represented 25% of

CMGI total assets, or $599,000,000.

66. CMGI=s Annual Report for FY 2000, ended July 31, 2000, reported $2,571,875,000 in total assets. Available-For-Sale Securities comprised $1,595,011,000 of those assets, or 62% of total assets. CMGI?s holdings of Lycos common stock were valued $781,600,000, or 30.4% of

CMGI=s total assets as reported in the company=s consolidated balance sheet.

27 67. CMGI further reported that during FY 2000, it had acquired initial or follow-on minority ownership interests in 47 internet companies for a total of approximately $267.5 million.

68. These impressive quarterly and yearly valuations of CMGI=s portfolio were not the result of normal market forces. At all times during the Class Period, CMGI=s total assets were comprised, in substantial part, of its investment in Lycos. During that time, as detailed below,

Defendants made false and misleading statements concerning Lycos in their unsubstantiated analyst reports which were designed to artificially inflate the price of Lycos stock. The artificial inflation of the price of Lycos stock resulted in the artificial inflation of the price of CMGI securities during the Class Period because of the substantial portion of CMGI=s assets represented by Lycos shares.

Defendants= False And Misleading Statements Concerning Lycos

69. On April 13, 1998 Merrill initiated coverage of Lycos with a rating of

AACCUMULATE/BUY,@ setting a 12-month price target of $75 per share, when Lycos was trading at $64 5/8 per share.

70. On May 7, 1998 Merrill issued an analyst report on Lycos with a rating of

AACCUMULATE/BUY.@ The reason provided for issuance of the report was a ACompany

Announcement,@ and the report was entitled ALycos and AT&T Announce Partnership.@

71. Approximately three months after Merrill initiated coverage, Merrill participated on a ?firm-commitment? basis and participated as an underwriter in a public offering of 2,250,000 shares of Lycos common stock at $50.00 per share on June 5, 1998.

72. According to the Registration Statement and Prospectus, Merrill agreed to purchase

28 325,125 shares from Lycos and selling stockholders. Merrill and the other underwriters also had the option to purchase up to an additional 337,500 shares of common stock to cover over- allotments.

73. Five days later, on June 10, 1998, Merrill issued another analyst report on Lycos with a rating of AACCUMULATE/BUY.@ The reason provided for issuance of the report was a

ACompany Announcement,@ and the report was entitled AU.S. Patent Issued to Lycos Relating to

>Spider= Technology.@

74. On July 29, 1998 Merrill participated as a selling stockholder in a public offering of

63,092 shares of Lycos common stock. For the three months prior to its sale of Lycos stock, Merrill issued analyst reports advising investors to AACCUMULATE/BUY.@

75. On August 20, 1998 Merrill issued another analyst report on Lycos again with a rating of AACCUMULATE/BUY.@ Merrill did not disclose that it had participated as an underwriter in the July 29, 1998 secondary offering. In an even more material omission, Merrill failed to disclose that it owned stock in Lycos while Merrill was touting Lycos= stock as Aour top pick among the Internet search and navigation companies.@

76. On August 25, 1998 Lycos underwent a 2-for-1 stock split.

77. On November 16, 1998 Merrill upgraded its rating of Lycos stock in an analyst report entitled, ALCOS: Raising Rating to Buy/Buy. $70 Price Objective.@ The reason provided for issuance of the report was ACompany Update.@

78. When Blodget assumed responsibility for coverage of Lycos in March 1999,

29 Merrill=s rating for Lycos was AACCUMULATE/ACCUMULATE.@ The report explained that,

A[w]e are assuming coverage of Lycos with an Accumulate rating. Because of the uncertainty surrounding the proposed deal with USA Networks, we would not be aggressive over the near to intermediate term.@ Nevertheless, with Lycos trading at $86 2 per share, Merrill set a 12 month price target of $100 per share for Lycos common stock.

79. By August 1999, the price of Lycos stock had fallen to $42 5/16 per share.

Nevertheless, on August 18, 1999, at the beginning of the Class Period, Merrill issued another analyst report on Lycos, maintaining the rating of AACCUMULATE/BUY.@ The reason give for the report was AQuarterly results.@ The report stated that, A[w]e expect LCOS to continue to be highly volatile but trend higher long-term. We believe the company is also an attractive acquisition candidate...@

80. Throughout September 1999, Merrill maintained a rating of

AACCUMULATE/BUY@ for Lycos. These ratings were set forth in analyst reports issued by

Merrill on September 14 and September 27, 1999.

81. In September 1999, Merrill included Lycos in the basket of shares that constituted

Merrill=s Internet HOLDRs Index (AMEX: HHH). HHH was a pre-assembled portfolio of stocks that could be purchased in a single transaction. Every round lot of HHH consisted of four shares of

Lycos, twenty one shares of AOL, thirteen shares of Yahoo, eighteen shares of Amazon.com, etc.

This allowed investors to purchase shares in several internet companies but pay only one transaction fee. Thus, HHH made it easier for investors to purchase Merrill=s internet stock picks;

30 in addition to Lycos, the stocks in Merrill=s Internet HOLDRs index included Ameritrade HLDG,

Amazon.com, AOL, At Home Corp., CNet, Inc., DoubleClick Inc., Ebay, Inc., E*Trade Group,

EarthLink Net, Exodus Communications, Go2Net, Inc., InkTomi Corp., CMGI, Mindspring,

Network Associates, Priceline.com, PSInet Inc., RealNetworks and Yahoo, Inc.

82. Merrill issued 3.7 million Internet HOLDRs shares on September 22, 1999 at a price of $108 3. By November 1999, 6.5 million Internet HOLDRs shares were outstanding, representing an aggregate market value in excess of $935 million.

83. Throughout October and November 1999, Merrill maintained its rating of

AACCUMULATE/BUY@ for Lycos.

84. On January 26, 2000, Merrill participated as an underwriter in a public offering of 6 million shares of Lycos common stock at a public offering price of $77.375 per share. The prospectus filed with the SEC indicates that Lycos agreed to sell 1,305,000 shares of common stock to Merrill. Merrill and the other underwriters also had an over-allotment option to purchase up to

900,000 additional shares of common stock from Lycos.

85. Following this public offering, the price of Lycos common stock rose to $69 1/16.

86. On February 16, 2000, Merrill issued another analyst report on Lycos, upgrading its rating to ABUY/BUY.@ The reason provided for the report, entitled ARaising Rating: Strong

Quarter, Good Outlook,@ was AQuarterly Results.@

87. On March 3, 2000 Merrill published another analyst report on Lycos wherein it reiterated its rating of ABUY/BUY.@ The reason provided for the report, entitled ABuying opportunity: Valuation is 40X Earnings,@ was ACompany Update.@

31 88. On March 23, 2000 Merrill published an analyst report on Lycos entitled ALycos

Europe is Trading: Means LCOS Has 55X P/E,@ wherein Merrill reiterated its rating of

ABUY/BUY.@ The report set a 12 month price target of $100 per share for Lycos common stock.

89. In May 2000, Terra Networks announced that it would acquire Lycos for $12.5 billion in Terra stock, or $97.55 per Lycos share.

90. In an analyst report issued on May 17, 2000 Merrill commented that this Adeal is very good news for Lycos shareholders in that it represents a substantial premium to recent trading levels. We would not be surprised to see Terra shares to face downward pressure from concerns about valution [sic], integration, the recent expiration of share lock-ups and dilution related to the rights offering.@ Merrill did not provide a rating for Lycos in this report.

Relationship Between CMGI and uBid

91. On February 10, 2000, CMGI announced a definitive agreement to acquire uBid in an all-stock transaction valued at approximately $407 million.

92. CMGI=s acquisition of uBid was completed in April, 2000. uBid ceased to exist as a separate entity and became a wholly-owned subsidiary of CMGI..

93. In CMGI=s Annual Report for FY2000, ended July 31, 2000, CMGI reported that the total price of the acquisition of uBid was valued at $390.8 million consisting of 3,068,374 shares of CMGI common stock valued at approximately $360.6 million, options to purchase CMGI common stock valued at approximately $26.5 million and direct acquisition costs of $5.9 million.

Defendants= False and Misleading Statements

32 Concerning uBid

94. uBid is an online auction site offering close-out and refurbished products to consumers and small to medium sized businesses. Merrill was the lead underwriter of uBid=s IPO on December 4, 1998

95. On March 23, 1999, Defendants reinitiated coverage of uBid with a rating of

AACCUMULATE/BUY,@ setting a 12 month price target of $90 per share when uBid was trading at $71 2 per share. Defendants noted that Aover the past month, uBid shares have not benefitted from the rally in internet shares.@ Merrill originally initiated coverage of uBid in January, 1999 but had dropped its coverage by the end of the month. The reinitiation of coverage began when

Blodget joined Merrill.

96. On April 23, 1999, when uBid stock had fallen to $51 1/8 per share, Defendants issued an analyst report on uBid, maintaining their AACCUMULATE/BUY@ rating. The reason provided for the issuance of the report was an AEarnings Update.@ The report was entitled AVery

Strong Q1 Results@ and Defendants substantially increased their revenue estimates for 1999 and

2000, noting that the company was Ahandily exceeding our expectations in most key metrics.@

97. By June, 1999, the price of uBid stock had fallen to $30 9/16 per share.

Nonetheless, on June 4, 1999, Defendants issued another analyst report on uBid, maintaining the rating of AACCUMULATE/BUY.@ The reason given for the report was ASpin-off effective next

Monday,@ referring to the spin-off of uBid by its parent company, Creative Computers.

98. In July, 1999, uBid submitted a registration statement and a prospectus to the SEC

33 regarding a secondary stock offering of 2 million shares of uBid common stock. For the second time, uBid retained Merrill as the lead underwriter. The offering was priced September 23, 1999 and the shares were first traded Friday, September 24, 1999.

99. Just three days later, on September 27, 1999, Defendants upgraded their rating of uBid stock in an analyst report entitled ABest Value on the Net@ and set a 12 month price target of

$50. uBid stock was trading at $31 per share The stock soared 30% in response to the report.

Merrill did not disclose that it was the lead underwriter and sole marketmaker of uBid=s 2 million share secondary offering.

100. In connection with the IPO and the secondary offering of uBid stock, Merrill received aggregate underwriting commissions and fees of approximately $2.1million.

101. On October 7, 1999, Defendants issued another analyst report maintaining the

ABUY/BUY@ rating and the 12 month price target. The reason for the report was ACompany

Update@ and Defendants reported on uBid=s strategic partnership with Infoseek=s GO Network.

102. Two weeks later, on October 21, 1999, when uBid was trading at $36 7/16 per share,

Defendants issued an analyst report maintaining the ABUY/BUY@ rating, noting that AuBid has continually exceeded our expectations since its IPO and we expect that it will continue to do so in the future.@

103. On December 6, 1999, Defendants published an analyst report on uBid entitled

ARaising Price Objective to $60.@ Defendants continued to maintain the rating of ABUY/BUY@ and raised the 12 month target price from $50 to $60 Abased on positive developments at the company@ and Arecent conversations with management.@

34 104. One week later, on December 13, 1999, Defendants issued another analyst report maintaining the ABUY/BUY@ rating and the 12 month target price of $60. uBid=s stock had dropped to $25 3/4 per share. The reason given for the report was ACompany Update.@

105. On January 19, 2000, Defendants issued another analyst report on uBid, maintaining the ABUY/BUY@ rating and 12 month target price. The reason given for the report was

AQuarterly Results@ and Defendants noted uBid Aposted strong Q4 results, exceeding our expectations in all key metrics.@ This report was published the same day that Gregory K. Jones, uBid=s president and CEO, contacted Merrill regarding the proposed merger between CMGI and uBid, as reported by CMGI in its S-4 filed with the SEC. Merrill did not disclose in its report that it had been contacted to serve as a financial advisor to uBid in connection with the merger.

106. On January 22, 2000 the uBid Board of Directors held a special meeting to discuss the proposed structure of the merger with CMGI. At that meeting, Merrill reviewed the proposed transaction, including its financial aspects, with the Board. The Board asked Merrill to continue evaluating the potential transaction and to report its findings at the next meeting on January 26,

2000.

107. At the January 26, 2000 meeting of uBid=s Board of Directors, all board members but one voted to proceed with formal negotiations with CMGI and to formally engage Merrill as its financial advisor for the transaction, agreeing to pay Merrill $2.3 million in cash upon the closing of the merger.

108. On February 11, 2000 Defendants issued a final Arestricted@ analyst report on

35 uBid, stating that CMGI had announced a definitive agreement to acquire uBid in an all-stock transaction valued at $407 million. Defendants noted that the transaction represented a 19% premium to uBid=s current stock price of $26 11/16. Finally, Defendants revealed that Merrill was acting as a financial advisor on the acquisition and had rendered a fairness opinion to uBid.

109. As a result of Defendants= scheme and course of conduct which was intended to and did artificially inflate and maintain the market price of uBid shares, CMGI acquired uBid and maintained uBid=s assets in its portfolio at artificially inflated market values. Thus, the price of

CMGI securities was artificially inflated.

Defendants= False and Misleading Statements Concerning CMGI

110. On December 20, 1999, Defendants initiated coverage of CMGI with a rating of

AACCUMULATE/BUY,@ setting a 12-18 month target price of $300. Defendants noted that

CMGI=s stock had performed well over the preceding three years and the company had experienced eight successful IPOs, including Lycos, and nine sales. Defendants stated that CMGI Ahas several characteristics that make it an especially compelling investment.@ The impact of Defendants= coverage was dramatic, catapulting CMGI=s stock up by over 21%.

111. On January 20, 2000, Defendants issued another analyst report on CMGI maintaining the rating of AACCUMULATE/BUY.@ The reason for the report was CMGI=s sale of Flycast and Adsmart. Defendants noted that these sales were Aanother example of how CMGI creates value for shareholders...@. As a result of a stock split on January 11, 2000, Defendants= target price was $150, which was maintained in their January 20, 2000 report. CMGI=s stock price

36 was trading at $122.18.

112. On February 10, 2000, Defendants issued a restricted report. The reason stated for the report was ACompany Update.@ Defendants reported that CMGI had announced a definitive agreement to acquire uBid and, as a result of the transaction, Defendants were restricted on both

CMGI and uBid stocks because uBid, continuing a long-standing investment banking relationship with Merrill, hired Merrill to act as a financial advisor in connection with uBid=s acquisition by

CMGI. Defendants did not disclose that they, in fact, knew of the proposed acquisition at least as early as January 19, 2000, one day before their favorable January 20, 2000 report.

113. Following the successful acquisition of uBid, on June 9, 2000, Defendants issued yet another favorable CMGI analyst report again maintaining the AACCUMULATE/BUY@ rating despite the shocking decline in CMGI=s stock price to $60.44. The reason given for the report was

ACompany Update.@ Defendants stated again that CMGI was a compelling investment and noted that ACMGI plans to continue investing in Internet companies at a rapid pace, targeting 1-3 acquisitions and 4-6 [strategic] investments per month.@

114. In the face of continued decline in CMGI=s share price, Defendants issued yet another analyst report just five days later, on June 14, 2000. The reason for this report was again

ACompany Update.@ The report maintained the AACCUMULATE/BUY@ rating and the 12 month target price of $100.

115. Defendants issued six more analyst reports, from July 21, 200 through October 6,

2000, on CMGI. Each report maintained Defendants= AACCUMULATE/BUY@ rating even though the stock had dropped from $58 per share on June 14, 2000 to an astounding $19 per share

37 as of the October 6, 2000 report. Defendants= October 4, 2000 report noted that at burnrates equal to CMGI=s July 2000 rate, the company had enough cash to last only seven months. Nevertheless,

Defendants did not lower their rating on CMGI.

The Material Omissions From And Misrepresentations In The Analyst Reports

116. As of the issuance of the CMGI, Lycos and uBid Analyst Reports, Defendants possessed material, adverse, non-public information, which reasonable investors deciding whether to invest would want to know in making their investment decision.

117. Defendants, when they issued the CMGI, Lycos and uBid Analyst Reports, knew that their issuance would, as had the past analyst reports issued by Defendants regarding other

Internet companies, serve to increase or inflate the market price of CMGI securities as compared to the market prices that would have prevailed had the CMGI, Lycos and uBid Analyst Reports not been issued. Defendants issued the reports with the intention of increasing and inflating the price at which these securities would trade. The material fact that uBid and Lycos securities prices were artificially inflated created the false appearance of greater valuation of CMGI=s portfolio.

118. Defendants issued the CMGI, Lycos and uBid Analyst Reports as part of Merrill

Lynch=s effort to obtain and/or maintain substantial investment banking and advisor fees, which it would obtain as the financial advisor to the companies in connection with the potential IPOs, acquisitions or mergers.

119. Defendants further issued the CMGI Analyst Reports as part of Merrill Lynch=s efforts to obtain investment banking fees by serving as the financial advisor to internet companies

38 invested in or acquired by CMGI, pursuant to CMGI=s stated business model.

120. As detailed above, in the CMGI, Lycos and uBid Analyst Reports, Defendants set forth a AReason for Report.@ The AReason for Report@ set forth in each of the CMGI, Lycos and uBid Analyst Reports was false and misleading because, in fact, the reason that Defendants had issued each of the Reports was to assist Merrill Lynch in its efforts to maintain and obtain investment banking fees and to artificially inflate the price of CMGI, Lycos and uBid securities.

121. The CMGI, Lycos and uBid Analyst Reports were deceptive and misleading because

Defendants failed to disclose in those Reports that Defendants had based their decisions as to which companies to cover in their analyst reports and as to what they would say in those reports regarding those companies, on the impact which those actions would have on Merrill Lynch=s ability to maintain and obtain underwriting and investment banking engagements from those companies or others.

122. The CMGI, Lycos and uBid Analyst Reports, and particularly, Defendants= recommendations in those reports, were deceptive and misleading because they failed to disclose that Merrill Lynch and Blodget had a policy and practice prior to and throughout the Class Period of never issuing an analyst report on an Internet company in which their rating or recommendation with respect to the stock of that company was other than ABUY/BUY@ or

AACCUMULATE/BUY.@ Defendants maintained that policy and practice, regardless of whether there was any rational economic basis for their recommendations that the applicable company=s stock be acquired, because if Defendants had assigned an internet company a rating of less than

39 AACCUMULATE/BUY@ it would jeopardize Merrill Lynch=s ability to obtain underwriting or investment advisory engagements from those companies or others. The CMGI, Lycos and uBid

Analyst Reports were deceptive and misleading because Defendants did not disclose in those

Analyst Reports the existence of, and Defendants= reason for, the above-described rating policy and practice.

123. The CMGI, Lycos and uBid Analyst Reports were deceptive and materially misleading because they failed to disclose that Defendants= recommendations of CMGI, Lycos and uBid lacked a reasonable basis in fact and were, in actuality, nothing more than undisclosed

Amomentum@ plays B i.e. the stock should be bought because its price will rise, even though there are no rational economic reasons why the stock should trade at its current price and no rational economic reasons why the stock=s price should continue to rise.

CLASS ACTION ALLEGATIONS

124. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons or entities who purchased

CMGI securities from March 23, 1999 through October 6, 2000 and who were damaged thereby.

125. Excluded from the Class are Defendants; members of the individual Defendant=s immediate family; any director, officer, subsidiary, or affiliate of Merrill Lynch; any entity in which any excluded person has a controlling interest; and their legal representatives, heirs, successors and assigns.

126. The members of the Class are so numerous that joinder of all members is

40 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 that there are thousands of members of the Class located throughout the United States. Throughout the Class Period, CMGI securities were actively traded in an efficient market on the NASDAQ National Market.

127. Plaintiff=s claims are typical of the claims of other members of the Class as all members of the Class were similarly affected by Defendants= wrongful conduct in violation of federal law that is complained of herein.

128. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.

129. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:

1. Whether the federal securities laws were violated by Defendants= acts and omissions

as alleged herein;

2. Whether Defendants participated in and pursued the illegal course of conduct

complained of herein;

3. Whether statements disseminated to the investing public during the Class Period

made misrepresentations or omissions of material information as alleged herein;

4. Whether the market price of CMGI securities during the Class Period was artificially

inflated due to the material misrepresentations and omissions complained of herein;

5. To what extent the members of the Class have sustained damages and the proper

41 measure of damages.

130. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. As the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually seek redress for the wrongs done to them. There will be no difficulty in the management of this suit as a class action.

COUNT I

AGAINST ALL DEFENDANTS FOR VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT AND RULE 10B-5 PROMULGATED THEREUNDER

131. Plaintiff repeats and realleges each and every allegation set forth above, as if fully set forth herein.

132. During the Class Period, Defendants, and each of them, carried out a plan, scheme and course of conduct of market manipulation that was intended to and did: (i) deceive the investing public, including Plaintiff and other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of CMGI securities; and (iii) cause Plaintiff and other members of the Class to purchase CMGI securities at artificially inflated prices. In furtherance of this unlawful scheme, plan, and course of conduct, Defendants, and each of them, took the actions set forth herein.

133. These Defendants: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (c) engaged in acts, practices and a course of business which operated as a fraud and deceit upon the purchasers of CMGI securities with the intent and result of

42 achieving and maintaining artificially high market prices for CMGI securities in violation of

Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

134. Defendants= material misrepresentations and/or omissions, and other deceptive devices and contrivances, were done knowingly or recklessly and for the purpose and effect of manipulating the price of CMGI securities. Further, Defendants knowingly concealed a serious conflict of interest arising out of Merrill Lynch=s role as a participating underwriter in Lycos= public offering and uBid=s secondary offering. Defendants had no reasonable basis in fact for their

AACCUMULATE/BUY@ recommendations for, and their target prices for, CMGI, Lycos and uBid common stock and made such recommendations based on a relationship with those companies that they knowingly and recklessly failed to disclose.

135. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of CMGI securities was artificially inflated during the Class Period. In ignorance of the fact that the market price of CMGI securities was artificially inflated, and relying directly or indirectly on the false and misleading statements made by Defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by Defendants but not disclosed in public statements by Defendants during the Class Period,

Plaintiff and the other members of the Class acquired CMGI securities during the Class Period at artificially inflated prices and were damaged thereby.

136. At the time of said misrepresentations and omissions, Plaintiff and the other

43 members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other members of the Class known of the omitted material facts, Plaintiff and the other members of the Class would not have purchased or otherwise acquired their CMGI securities during the Class

Period, or, if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid.

137. Plaintiff and the other members of the Class were injured because the risks that materialized were risks of which they were unaware as a result of Defendants= misrepresentations, omissions and other fraudulent conduct alleged herein. Absent Defendants= wrongful conduct,

Plaintiff and the members of the Class would not have been injured.

138. By virtue of the foregoing, Defendants each violated Section 10(b) of the Exchange

Act and Rule 10b-5 promulgated thereunder.

139. As a direct and proximate result of Defendants= wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their purchases of CMGI securities during the Class Period.

COUNT II

AGAINST DEFENDANT MERRILL LYNCH PURSUANT TO SECTION 20(A) OF THE EXCHANGE ACT

140. Plaintiff repeats and realleges each and every allegation set forth above, as if fully set forth herein.

141. This claim is asserted against Defendant Merrill Lynch for violations of Section

20(a) of the Exchange Act, 15 U.S.C. '78t(a), on behalf of all Class members who purchased, or otherwise acquired, CMGI securities during the Class Period, and were damaged thereby.

44 142. As set forth above, during the entire Class Period, Defendant Merrill Lynch was a

Acontrolling person@ of Defendant Blodget, within the meaning of Section 20(a) of the Exchange

Act.

45 143. Merrill Lynch was a Acontrolling person@ of Blodget because it had the influence and power over Blodget to cause, and did cause, Blodget to engage in the wrongful conduct complained of herein, and because it had the power to have prevented Blodget from engaging in the unlawful conduct alleged herein, but purposely and intentionally did not use that power to do so.

144. As set forth in Count I, Blodget violated Section 10(b) of the Exchange Act and Rule

10b-5 promulgated thereunder by his acts and omissions as alleged in this Complaint. By virtue of its status as a Acontrolling person@ of Blodget, Merrill Lynch is liable, to the same extent as

Blodget, for Blodget=s violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, pursuant to Section 20(a) of the Exchange Act.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, on behalf of himself and the Class, prays for judgment as follows:

a. declaring this action to be a class action properly maintained pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure;

b. finding that Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by their acts and omissions as alleged in this Complaint;

c. awarding Plaintiff and the other members of the Class damages, together with interest thereon;

d. awarding Plaintiff and the other members of the Class their costs and expenses of this litigation, including reasonable attorneys= fees and experts= fees and other costs and disbursements; and

e. awarding Plaintiff and the other members of the Class such other and further relief as

46 may be just and proper under the circumstances.

JURY TRIAL DEMAND

Plaintiff demands a trial by jury.

Dated:New York, New York, September 25, 2002. By the attorneys for the plaintiff and the class

______Linda P. Nussbaum (LN 9336) Susan R. Schwaiger (SS 8653) COHEN, MILSTEIN, HAUSFELD & TOLL, P.L.L.C. 825 Third Avenue, Thirtieth Floor New York, New York 10022-7519 Telephone: (212) 838-7797

Herbert E. Milstein Steven J. Toll Joshua S. Devore COHEN, MILSTEIN, HAUSFELD & TOLL, P.L.L.C. 1100 New York Ave. NW. West Tower, Suite 500 Washington, DC 20005 Telephone: (202) 408-4600

Of Counsel:

Edward F. Haber (EH 1248) Theodore Hess-Mahan (THM 8499) SHAPIRO HABER & URMY, LLP 75 State Street Boston, MA 02109 Telephone: (617) 439-3939