From TheStreet.com: Merrill Lynch Fires Top Retail Analyst By Rebecca Byrne Staff Reporter 08/21/2002 03:15 PM EDT Merrill Lynch (MER:NYSE - news - commentary - research - analysis) fired top retail analyst Peter Caruso Tuesday night because he violated the firm's research policy, according to a spokeswoman. Merrill said Caruso, who followed 20 stocks, violated the company's policy "regarding the disclosure of an earnings estimate change." Caruso had been ranked No. 1 among retail analysts by Institutional Investor for the past five years. Spokeswoman Melanie Begelman refused to comment on speculation that the analyst had been let go because he warned select clients about his imminent downgrade of Home Depot (HD:NYSE - news - commentary - research - analysis). Shares of Home Depot fell about 17% in the days before the downgrade. When Caruso cut his recommendation on July 12 to neutral from strong buy, the stock shed another 7.4%. It's about damn time! We have long suspected that major houses took big positions ahead of market moving analyst announcements, and Jim Cramer has confirmed in nauseating detail the process by which big commish generators are spoon-fed such info before it is publicly announced. Of course, Cramer doesn't see anything wrong with the practice. He thinks it is a legitimate perk of being a big hitter, kind of like getting Yankees' tickets. Under current law, this practice of front-running analysts is not deemed insider trading, since it is third-party information. The brokers could argue that it represents fraud on them, kind of like the Wall Street Journal case a few years back, but don't hold your breath.
Cramer seems to have stopped trading ever since regulation FD took effect and since finanical news networks stopped their correspondents from dealing on the side the way Cramer and Maria B were doing. Trading is alot easier when you know what is going to happen I suppose.
Now, a mess at Merrill Lynch 08/01/02 Merrill Lynch has been fond of remind ing us that it is "bullish on America." But evidence is now emerging that the giant brokerage firm may have been even more bullish on something else: propping up Enron in order to win more investment banking business. Congressional investigators said this week that Merrill Lynch fired one of its analysts four years ago because he was skeptical of Enron's business dealings and refused to issue rosy predictions about the company's stock price. The investigators allege Merrill Lynch officials were convinced that the analyst's reservations about Enron resulted in the firm's not receiving enough of Enron's banking business. Those same investigators detailed other instances in which Merrill Lynch allegedly compromised its ethics on behalf of Enron. Merrill Lynch officials naturally deny acting improperly on Enron's behalf. But it is worthy of note that two of Merrill Lynch's investment bankers who were called before the Senate Permanent Subcommittee on Investigations on Tuesday declined to testify, citing their Fifth Amendment right against self-incrimination. No wonder investor confidence has never been lower. If one of the world's most respected brokerage houses is more concerned about making millions than it is about telling the truth to its clients, then the public can't be faulted for fleeing the stock market. Merrill Lynch's apparent desire to be bullish on Enron goes a long way toward explaining why Americans continue to be bearish on stocks. © 2002 The Plain Dealer.
Check out this paper: http://www.public.asu.edu/~selim69/research/RegFD.pdf I'm working on something similar. But my bet is that the earning related info is more closely monitored now, so even though this guy finds there's less evidence of informed institutional trading prior to announcements, I hope to show that there's plenty of that going on around other significant events... Just my $0.02