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268789 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK ___________________________________ JON M. ROSENBAUM, on behalf of : No. ___________________ himself and all others similarly situated, : : CLASS ACTION COMPLAINT Plaintiff, : FOR VIOLATIONS OF THE : FEDERAL SECURITIES LAWS v. : : MERRILL LYNCH & CO., INC., : HENRY BLODGET, JUSTIN BALDAUF, : KIRSTEN CAMPBELL, VIRGINIA : JURY TRIAL DEMANDED SYER GENEREUX, SOFIA GHACHEM, : THOMÁS MAZZUCCO, EDWARD : MCCABE and DEEPAK RAJ, : : Defendants. : ___________________________________ : Plaintiff, by his undersigned attorneys, individually and on behalf of the Class described below, upon actual knowledge with respect to the allegations related to Plaintiff=s purchase of the common stock of Excite@Home Corporation (AExcite@Home@ or the ACompany@), and upon information and belief with respect to the remaining allegations, based upon, inter alia, the investigation of Plaintiff=s counsel, which included, among other things, a review of public statements made by defendants and their employees, Securities and Exchange Commission (ASEC@) filings, and press releases and media reports, brings this Complaint (the AComplaint@) against defendants named herein, and alleges as follows: 268789 NATURE OF THE ACTION 1. This is a federal securities class action brought by the Plaintiff against defendants Merrill Lynch & Company (“Merrill Lynch”), Henry Blodget (“Blodget”), Justin Baldauf (“Baudauf”), Kirsten Campbell (“Campbell”), Virginia Syer Genereux, (“Genereux”), Sofia Ghachem (“Ghachem”), Thomas Mazzucco (“Mazzucco”), Edward McCabe (“McCabe”), and Deepak Raj (“Raj”) (together, the “Defendants”, without Merrill Lynch, the “Individual Defendants”) on behalf of a class (the “Class”) consisting of clients of Merrill Lynch who purchased the common stock of Excite@Home between August 30, 1999 and November 8, 2000 inclusive (the “Class Period”), as well as persons who were not clients of Merrill Lynch who also purchased the Common Stock of Excite@Home during the Class 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 “Exchange Act”) and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. 2. Defendant Merrill Lynch is the largest securities broker in the United States. 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. -2- 268789 3. Defendant Blodget was, at all relevant times, a First Vice President of Merrill Lynch and was Merrill Lynch’s analyst for Internet companies. The other Individual Defendants all reported to Blodget 4. This action arises as a result of the issuance by the Defendants of analyst reports regarding Excite@Home, which recommended the purchase of Excite@Home common stock and which set price targets for Excite@Home common stock, without any reasonable factual basis. Furthermore, when issuing their Excite@Home reports, the Defendants failed to disclose significant, material conflicts of interest which they had, in light of their use of Blodget’s reputation and his Excite@Home analyst reports, to obtain investment banking business for Merrill Lynch. Furthermore, in issuing their Excite@Home reports, in which they were recommending the purchase of Excite@Home stock, the Defendants failed to disclose material, non- public, adverse information which they possessed about Excite@Home as well as their true opinion about Excite@Home. 5. Throughout the Class Period, defendant Blodget maintained an ACCUMULATE/BUY” or a “ACCUMULATE/ACCUMULATE” recommendation on Excite@Home in order to obtain and support lucrative financial deals for Merrill Lynch. Unbeknownst to the investing public, Merrill Lynch was seeking to be retained as a financial adviser for other Internet companies. Such investment banking engagements were worth millions of dollars in fees to Merrill Lynch. -3- 268789 6. The Class Period begins on May 5, 1999, three years prior to the filing of this Complaint. Defendants initiated their coverage of Excite@Home on September 10, 1997, but, because of the statute of limitation in the PSLRA, plaintiff and the Class are limited in their claims for damages to the three-year period prior to the filing of this Complaint. Nonetheless, Defendants’ fraud began earlier than the beginning of the Class Period and continued until exposed by the filing of an affidavit by the New York State Attorney General, as discussed below, which disclosed the extent to which Defendants misrepresented their true valuation of Excite@Home and numerous other Internet stocks. The Class Period ends on April 8, 2002, the date on which the Attorney General’s affidavit was filed. 7. As underwriters for Excite@Home common stock and, therefore, as agents of Excite@Home, and/or as brokers for Plaintiff and certain members of the Class, Merrill Lynch and the Individual Defendants, had a duty to Plaintiff and the Class to provide information which was truthful and was not false or misleading; and to disclose information which was material to Plaintiff and the Class in their decisions to purchase or sell Excite@Home common stock. In particular, Defendants had a duty to disclose that there was no “Chinese Wall” between the investment bankers at Merrill Lynch and the Individual Defendants and that, in fact, the Individual Defendants were nothing other than pitchmen for the investment bankers, touting Excite@Home common stock even though they knew that their positive recommendations had no basis in fact and that, as a result, Plaintiff and the Class would, and did, suffer serious monetary damage. -4- 268789 8. As demonstrated herein, as a result of Blodget’s highly publicized reputation as an analyst of Internet companies, the Defendants’ positive reports on, and their “ACCUMULATE/ BUY” or “ACCUMULATE/ACCUMULATE” recommendations on, Excite@Home significantly increased and inflated the price of Excite@Home stock throughout the Class Period. 9. The Defendants’ recommendations in their analyst reports on Excite@Home that the stock should be bought were, in fact, nothing more than undisclosed “momentum” plays – 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. This approach to buying stocks has often been called the “greater fool theory,” reflecting the observation regarding an overpriced security that, while only a fool would pay that much for the stock, one should buy it anyway because one would be able to sell it later to an even “greater fool.” 10. As demonstrated in detail herein, Defendants’ “ACCUMULATE/ BUY” or “ACCUMULATE/ACCUMULATE” recommendations of Excite@Home and the price targets which they set for Excite@Home stock lacked a reasonable basis in fact and were dominated and influenced by the Defendants’ undisclosed serious conflict of interest arising out of Merrill Lynch’s effort to be appointed as financial advisor to other Internet companies. -5- 268789 JURISDICTION AND VENUE 11. This Court has jurisdiction over the subject matter of this action pursuant to ' 27 of the Securities Exchange Act of 1934 (the AExchange Act@), 15 U.S.C. ' 78aa, and 28 U.S.C. ' 1331. 12. Plaintiff brings this action pursuant to the Exchange Act, as amended, 15 U.S.C. '' 78j(b) and 78t(a) and Rule 10b-5 promulgated thereunder, 17 C.F.R. ' 240.10b-5. Venue is proper in this District because Defendants conduct business in this District and many of the wrongful acts alleged herein took place or originated in this District. In addition, Merrill Lynch has its headquarters in this District at 4 World Financial Center, 250 Vesey Street, New York, New York. 13. In connection with the acts 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 14. Plaintiff Jon M. Rosenbaum, a client of Merrill Lynch, purchased shares of Excite@Home during the Class Period and was damaged thereby as set forth in his certification attached hereto. 15. Defendant Merrill Lynch & Co Inc. is an international investment firm that provides investment banking services to businesses, engages in retail and institutional sales to its customers, and -6- 268789 publishes research reports and ratings on stocks. Merrill Lynch’s corporate headquarters are located in New York City. 16. Defendant Henry Blodget was, until his departure from Merrill Lynch in December 2001, a managing director and head of the Internet Research group in New York City. Mr. Blodget reported to defendant Deepak Raj and Andrew Melnick. 17. Defendant Justin Baldauf is an analyst in the Internet Research group at Merrill Lynch in New York City. Mr. Baldauf reported to defendant Blodget, and became head of the Internet Research group upon Mr. Blodget’s departure from Merrill Lynch. 18. Defendant Kirsten Campbell was, until her departure from Merrill Lynch in April 2001, a vice- president and analyst in the Internet Research group in New York City. Ms. Campbell reported to defendant Blodget. 19. Defendant Virginia Syer Genereux is a research analyst at Merrill Lynch in New York City. Ms. Syer reported to defendant Blodget. 20. Defendant Sofia Ghachem was an analyst in the Internet Research group at Merrill Lynch in New York City. Ms. Ghachem reported to defendant Blodget. 21. Defendant Thomas Mazzucco is a managing director of Merrill Lynch’s Investment Banking Technology group in Palo Alto, California. -7- 268789 22. Defendant Edward McCabe was, until his departure from Merrill Lynch in December 2001, a first vice president and a senior analyst in the Internet Research group in New York City.
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