Skip to contentNader Bearish on Merrill Lynch Settlement
WASHINGTON, D. C. May 21—Ralph Nader today dubbed the agreement between New York Attorney General Eliot Spitzer and Merrill Lynch “grossly inadequate” to protect investors.
“I call on Attorney General Spitzer to reconsider his framework reached
with Merrill Lynch as it insufficiently protects investors and
shareholders,” said Nader.
This agreement leaves shareholders unprotected for several reasons:
1. It denies restitution to investors who were harmed.
2. By allowing Merrill Lynch to avoid admitting wrongdoing, this deal
makes it much more difficult for investors to recover in private civil
litigations. Spitzer agreed to the following phrase by Merrill Lynch
regarding the agreement: “[It] represents neither evidence nor admission
of wrongdoing or liability”. Said Nader: “This betrays Spitzer’s own
standards that he insisted on – an admission of wrongdoing – as a
condition for Merrill Lynch to avoid criminal prosecution. “
3. Any deal with Merrill Lynch or any other brokerage should require
that investment banks divest their analyst divisions that provide
investment advice to the public. There needs to be a complete
separation of analyst and investment banking functions to protect
investors. This deal does not achieve this. Only if analysts are
entirely independent of investment bankers can investors be confident
they are receiving objective advice. “Spitzer’s deal even allows
analysts to continue to attend investment banking roadshows,” said
Nader. “Investors should hang onto their wallets.”
4. Nader criticized Spitzer for commending Merrill Lynch in a press
release announcing the settlement. “You don’t commend someone who has
just deceived investors into huge losses for their own investment
banking fees benefit,” said Nader.
5. Nader also urged Spitzer to appoint a monitor to oversee Merrill
Lynch’s compliance that has no ties to the securities or accounting
industry.
Given the evidence that continued to flow in to Attorney General
Spitzers investigators and given the magnitude of the wrongdoing,
Spitzer’s concessions to Merrill Lynch not only weaken his own
enforcement action, but provide gratuitous obstacles to innocent
investors who are intent on securing restitution for their losses,” said
Nader. “A tiny fraction of the losses by investors directly
attributable to Merrill Lynch’s deceptions is encompassed in the fine of
$100 million that goes not to investors, but to the states.”
At a swank political dinner in Washington recently, the joke circulating
was that there is a new axis of evil: Enron, Arthur Anderson and Merrill
Lynch. For millions of retirees,
workers and investors, this is no joke. Just weeks ago, the cover page
of Business Week asked “How corrupt is Wall Street.” The article
inside answered the question by demonstrating that Wall Street is
seriously corrupt.
Even as Spitzer is inking a deal to absolve Merrill Lynch of ultimate
responsibility for duping investors, Congress has not even begun to
seriously address reforms that would ensure that Enron, Arthur Anderson,
Merrill Lynch and other corporate misdeeds are not repeated.
Nader called for Congress, the SEC and the Attorneys General to get
behind the following reforms as the only way to protect investors:
A. Total public funding of all elections. No more Enron-purchased
politicians.
B. Restore New Deal protections that investors, retirees, savers and
workers are entitled to. The shredding of the New Deal investor and
retiree safety net begat Enron, Anderson and Merrill Lynch. Repeal all
legislation that has undermined New Deal safeguards in the last decade:
consumer, securities, and banking deregulation in particular must be
reversed. Broaden protections to encompass evolving financial
institutions that did not exist during the New Deal.
C. Demand Globalization of investor and retiree protections. Financial
statements must be understandable and comprehensive around the globe;
firms that violate this prerequisite to investing must be subject to
criminal penalties and lose access to American financial markets.
D. Get tough on corporate crime. Heightened criminal penalties for
financial crimes equal to the toughest federal and state penalties for
street crimes related to property and not involving violence.
E. An Independent Prosecutor for Merrill Lynch, Enron, Global Crossing
and progeny. An Independent Prosecutor is needed for any situation
where the majority of either Congress or the lead investigating
committee has received contributions from either the target or its
accounting firm or underwriters.
In addition, Nader said there was a critical need for investors to band
together and organize their own Financial Consumer Associations (FCAs)
as watchdogs to represent them before regulatory bodies and in the
courts in negotiations with securities firms and other financial
services providers. The FCAs would be nonprofit, nonpartisan
organizations supported by member dues and receive no tax money. The
members would elect a board of directors which could hire researchers,
organizers, accountants and lawyers.