"Whatever the merits of the particular legal claims in
the VA Linux case, there's blood in the water, and lawsuits are
mounting against a host of Linux companies and dot-coms. As of last
week there were &amp;mode=nocommentnearly seven hundred
lawsuits pending just in the U.S. District Court for the Southern
District of New York. Lawsuits are being filed at the rate of over
50 a week. Suits typically name both investment houses and the
firms they promoted, although in many cases companies were taken
along for the ride, right along with stockholders.
Much of those stock run ups were driven by hilariously
inaccurate "recommendations" generated by analysts who worked for
investment banking companies underwriting stock or holding it in
speculation. Toward the end of the stock bubble these
recommendations had become an industry in of themselves. Analysts
dominated cable shows. Services like First Call, which featured
analyst speculation, became required reading among investors.
Unfortunately, the advice these analysts gave was worse than
valueless. Earlier this summer, four professors from the University
of California's Haas School of Business studied "buy" and "sell"
recommendations by analysts attached to U.S. investment banks like
Goldman Sachs and Merrill Lynch . Their report, titled "Prophets
and Losses," found that the average stock recommended by analysts
fell over 30% below the market average. Stocks with sell or
similarly negative recommendations outperformed the market by
One major reason for these inaccuracies has been blatant
conflict of interest. In a statement before the U.S. House, Rep.
Edward Royce (R-Calif.) cited the example of Merrill Lynch's high
profile "analyst" Henry Blodget. Blodget is best known for his
nearly tireless promotion of Amazon.com, which sent the company's
stock price soaring toward $400 per share until reality sunk in.
According to Royce, Blodget should be better known for what he did
to GoTo.com. During the period when Merrill Lynch and Credit Suisse
First Boston (CSFB) were competing to be the chief underwriter of
GoTo's stock, Blodget couldn't say enough good things about the
company. Within two hours of CSFB winning the business instead of
Merrill, Blodget downgraded the stock."
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