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Ralph Nader > Special Features > Nader 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


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


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.