Securities Fraud Lawsuit Against Ex-Merrill Lynch Analyst Accused of Issuing False Reports About CMGI Inc. is Dismissed

In New York, a judge has dismissed the securities fraud case against former Merrill Lynch research analyst Henry Blodget. The former lead Internet analyst of the company’s Internet Group is accused of allegedly issuing false reports regarding CMGI Inc. stock.

In 2007, investor Ronald Ventura had filed a securities fraud lawsuit against Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Inc., and Blodget. Ventura is one of a number of plaintiffs that have sued the defendants after the New York State Attorney General’s Office made allegations that they had published misleading or false recommendations about Internet-based stocks. Merrill Lynch agreed to a $100 million fine in 2002 as part of a settlement deal with the NYAG.

In The U.S. District Court for the Southern District of New York earlier this month, Judge John Keenan said that Ronald Ventura’s complaint “fails to plead that the alleged false statements made by the defendants were the cause of Ventura’s financial losses.”

Instead the judge says that the plaintiff said that Blodget issued falsely optimistic target projections and made false recommendations to investors about CMGI stock even though the ex-Merrill Lynch analyst believed that the Internet holding company was facing a liquidity crisis and issuing misleading information about its revenues.

It wasn’t until a 2000 research report finally revealed the risks associated with CMGI’s dangerous financial state that the company’s stock price dropped. Ventura claims that Blodget’s reports helped boost CMGI’s stock value and gave Merrill Lynch a profitable underwriting business. The plaintiff also alleges that Blodget was rewarded for bringing new business to Merrill Lynch.

Judge Keenan says that he dismissed the case because Ventura failed to adequately plead loss causation. The judge says that just like other investors, Ventura lost money by speculating in CMGI stock (which rose during the Internet boom and then dropped significantly when the bubble burst in 2000). The judge says that Ventura is trying to blame Blodget for the gambling losses.

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Related Web Resources:

SEC Sues Merrill Lynch and Henry Blodget for Research Analyst Conflicts of Interest,, April 28, 2003
Investor’s Suit Against Merrill Over Internet Stock Dismissed, New York Law Journal, May 13, 2008