A New York-based law firm is suing Merrill Lynch, alleging that its clients — current and former Enron Corp. stockholders — purchased shares in Enron “as a result of misleading research and advice from Merrill Lynch analysts and brokers.”

Last year, Merrill offered to pay an $80 million fine to settle a Securities and Exchange Commission (SEC) investigation concerning two questionable transactions with Enron in 1999 (see NGI, Feb. 24, 2003). It did not admit any wrongdoing. And last September, three former Merrill financial executives surrendered to the Federal Bureau of Investigation in Houston for allegedly violating criminal law for their dealings with Enron and for making false statements to a grand jury, the U.S. Congress, the SEC and Enron’s bankruptcy examiner.(see NGI, Sept. 22, 2003).

According to the latest lawsuit, Merrill “inappropriately advised clients to purchase shares of Enron by not disclosing a conflict of interest between its research and investment banking divisions.” It stated that in 1998, Merrill, “concerned about being excluded from a large Enron stock offering, replaced John Olson, Merrill Lynch’s top energy analyst who was not positive with respect to Enron’s stock, with Donato Eassey, who was bullish on Enron. Merrill Lynch was specifically rewarded for the analyst switch with tens of millions of dollars in Enron investment banking business.”

Merrill also helped Enron set up some off-balance sheet transactions, and although “Merrill Lynch allegedly knew that Enron was deceiving investors by hiding debt, Merrill Lynch never disclosed this information to the public, and material maintained a false and misleading ‘buy’ recommendation on Enron’s stock at all times.”

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