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105).ttne 194'
s4UNITED STATES DI p, co vi 4/1
SOUTHERN DISTRIC i W YORK- _ —1
SANDRA and RONALD BLAIR, on behalf ofthemselves and all others similarly siWfttbci,
Civil Action No.
Plaintiffs,
FEDERAL SECURITIES-against-CLASS ACTION COMPLAINT
MERRILL LYNCH & CO., INC. andHENRY M. BLODGET,
1=1Jury Trial Demanded
.41M'Defendants.
- • •,Plaintiffs, individually and on behalf of all other persons similarly situated, by4iteir'l
undersigned attorneys, for their complaint, allege upon person& knowledge as to themselves and
their own acts and upon infortnation and belief as to all other matters, based upon the investigation
made by and through their attorneys, which investigation included, among other things, a review of
analyst reports published and disseminated to the investing public by defendant MertillLynch & Co.,
Inc. ("Merrill Lynch"), internal communications of Merrill Lynch employees and recent court filings
by the New York State Attorney General obtaining an order requiring immediate reforms by Merrill
Lynch:
NATURE OF ACTION
1. This is a securities class action on behalf of public investors who purchased the
common stock of At Home Corporation, doing business as Exeite@Home ("Excite" or the
"Company"), during the period from August 18, 1999 through June 20, 2001, both dates inclusive
(the "Class Period"). Named as defendants are Merrill Lynch and its former star interne research
analyst Henry M. Blodget ("Blodget"). These defendants are charged with violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.
2. During the Class Period, defendants issued to the investing public false and
misleading analyst reports and ratings about the business operations and prospects of the Company.
As a result of these false and misleading statements, the market price of the Company's common
stock was artificially inflated, maintained or stabilized during the Class Period to the injury of
plaintiffs and the Class who purchased the stock during the Class Period relying on the integrity of
the price of the stock.
3. On April 8, 2001, New York State Attorney General Eliot Spitzer issued a press
release announcing that he had obtained a court order requiring Merrill Lynch to make more
disclosures to investors about its relationship with investment banking clients and provide more
context for its stock ratings. The court action was the result of a ten-month investigation by the
Attorney General that concluded that "the firm's supposedly independent and objective investment
advice was tainted and biased by the desire to aid Merrill Lynch's investment banking business."
The press release continues:
Spitzer cites dramatic evidence that the firm's stock ratings were biased anddistorted in an attempt to secure and maintain lucrative contracts forinvestment banking services. As a result, the firm often disseminatedmisleading information that helped its corporate clients but harmedindividual investors.
"This was a shocking betrayal of trust by one of Wall Street's mosttrusted names," Spitzer said. The case must be a catalyst for reformthroughout the entire industry."
Spitzer's office uncovered a major breakdown in the supposed separationbetween the banking and research divisions at Merrill Lynch. In fact,analysts at Merrill Lynch helped recruit ne-w investment banking clientsand were paid to do so. The public, however, was led to believe thatresearch analysts were independent, and that the firm' s rating system wouldassist them in making critical investment decisions.
2
As part of a quid pro quo between the firm and its investment bankingclients, Merrill Lynch analysts skewed stock ratings, giving favorablecoverage to preferred clients, even when those stocks were dubiousinvestments.
This problem and other conflicts of interest are revealed by internal e-mailcommunications obtained during the investigation by the AttorneyGeneral's office.
These communications show analysts privately disparaging companieswhile publicly recommending their stacks. For example, one analyst madehighly disparaging remarks about the management of an internet companyand called the company's stock "a piece of junk," yet gave the company,which was a major investment banking client, the firm's highest stockrating.
The communications show analysts complaining about pressure fromMerrill Lynch's investment banking division. For example, a senior analystwrites: "the whole idea that we are independent of (the) banking(division) is a big lie."
A senior manager stated: "We are off bases in how we rate stocks and howmuch we bend over backwards to accommodate banking." But nothingwas done to remedy this fundamental problem.
The communications show that the problems at Merrill Lynch went farbeyond a single analyst ar research unit. For example, the head of theequity division wrote to analysts: "We are once again surveying yourcontribution to investment banking ... please provide complete details onyour involvement .. paying particular attention to the degree your researchplayed a role in originating ....<banking business.>"
And most importantly, the communications show how individualinvestors were harmed. A research analyst complained about giving a buyrating to a poor investment: "I don't think it is the right thing to do. Johnand Mary Smith are losing their retirement because we don't want aclient's CEO to be mad at us."
(Boldface italics added; omissions and alterations in the original.)4. Excite is among the Internet companies Merrill Lynch publicly hyped but privately
disparaged in its pursuit of lucrative banking fees to the tremendous financial detriment of public
investors.
3
5. Merrill Lynch had numerous, lucrative investment banking relationships with
Excite. For example, Merrill Lynch coled the Company's July 1997 initial public offering and
August 1998 seconday offering. In addition, Merrill Lynch was the lead manager in the Company's
December 1998 debt offering. These and other engagements earned Merrill Lynch tens of millions
of dollars in fees.
6. To protect this important client and maintain and enhance its lucrative banking
relationships, Merrill Lynch issued positive ratings on Excite which were materially misleading as
they were inconsistent with defendants' undisclosed contemporaneous negative assessments of thc
Company. For example, while consistently reiterating a short-term accumulate, long-term buy
rating, Blodget internally labeled the stock "neutral," with a "flat" outlook and without any "real
catalysts" for improvement and tellingly called it a "piece of crap." Even at the end of the Class
Period, when defendants downwardly revised the rating to neutral, they still failed to reveal their true
assessments of the Company and never rated the Company reduce or sell even as it spiraled towards
bankruptcy. On September 28, 2001, the Company filed a bankruptcy petition.
7. Defendants' false and misleading reports artificially inflated, stabilized or
maintained the price of Excite shares. Merrill Lynch and Blodget had tremendous influence on the
market price of intemet stocks, including that of Excite. Blodget enjoyed celebrity status and the
reputation as one of the most influential analysts in the technology world. For example, in October
1999, Time Magazine named Blodget one of the fifty most important people shaping technology
today and "arguably the most influential voice on Internet stocks in the world." The March 5, 2001
edition of Forbes referred to Blodget as a "god in the Internet world." The October 2, 2000 edition
of Fortune called BIodget "the media's favorite Internet talking head." The March 12, 2001 issue
4
of The Washington Post noted that since 1998 Blodget had been named 95 times in the Wall Street
Journal, 66 times in the New York Times, 53 times in The Washington Post and 27 times in Business
Week. Blodget also appeared numerous times on financial news television programs. According to
the April 3, 2000 edition of Business Week, Blodget appeared or was mentioned 211 times from
January 1, 1999 to March 21, 2000 on ABC News, NBC News, CNBC, CNN, CN-Nfn, and Nightly
Business Report.
8. Blodget's ability to significantly affect the prices of internet stocks, including
Excite, was widely recognized in the financial press. For example_ on August 19, 1999, the New
York Times reported that "a recommendation of eight Internet stocks [which included Excite' by
Merrill Lynch's influential analyst, Henry Blodget, helped keep the Nasdaq average in positive
territory...." Also that day, the Wall Street Journal noted that "electronic-commerce stocks got a
sudden boost yesterday after Merrill Lynch analyst Henry Blodget told clients in a conference call
that he believed sentiment is timing back toward these issues...."
JURISDICTION AND VENUE
9. The claims asserted below arise under §§ 10(h) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15 U. S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 pro-
mulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10h-5.
10. Jurisdiction is conferred upon this Court by §27 of the Exchange Act, 15 U.S.C.
§ 78aa and, 28 U.S.C. §§ 1331 and 1337.
11. Venue is proper in this District pursuant to § 27 of the Exchange Act and 28
U.S.C. § 1391(b) since Merrill Lynch has its principal place of business in this District, and many
of the acts alleged herein, including the dissemination of the misleading statements to the investing
public, occurred in substantial part in this District.
5
12. In connection with the acts, conduct and other wrongs alleged herein, defendants,
directly and indirectly, used the means and instrumentalities of interstate commerce, including the
United States mails, interstate telephonic communications and the facilities of the national securities
exchanges.
THE PARTIES
Plaintiffs
13. Plaintiffs Sandra and Ronald Blair purchased shares of the Company's common
stock during the Class Period as set forth in the accompanying certification and have been damaged
as a result of defendants' conduct as described herein.
Defendants
14. Defendant Merrill Lynch & Co., Inc. is an international investment firm that
provides investment banking services to businesses, engages in retail and institutional sales to its
customers and publishes research reports and ratings on stocks. Merrill Lynch' s corporate heady in-
ters are located in New York City.
15. Defendant Henry M. Blodget was, until his departure from Merrill Lynch in
December 2001, a managing director and head of the interne research group in New York City. As
described herein, defendant Blodg et was regarded throughout the Class Period as the most influential
intemet analyst in the world. His ability to move stock prices was widely recognized and reported
in the media.
CLASS ACTION ALLEGATIONS
16. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of all persons vvho purchased shares of the Company's common
stock during the period from August 18, 1999 through June 20, 2001, both dates inclusive (the
6
"Class"). Excluded from the Class are defendants; members (Attie individual defendant' s immediate
Family; officers, directors, subsidiaries or affiliates of Merrill Lynch; any entity in which any
excluded person has a controlling interest; and legal representatives, heirs, successors or assigns of
any of the foregoing.
17. The mernbers of the Class are so numerous that joinder of all members is
Impracticable. While the exact number of Class members is unknown to plaintiffs at this time and
can only be ascertained through appropriate discovery, plaintiffs believe there are, at a minimum,
thousands of members of the Class who purchased Company common stock during the Class Period.
18. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. Among the
questions of law and fact common to the Class are:
• whether defendants engaged in acts or conduct in violation of the federalsecurities laws as alleged herein:
• whether defendants participated in and pursued the common course ofconduct complained of herein;
• whether defendants issued false and misleading statements during the ClassPeriod;
• whether the market prices of the Company's common stock during theClass Period was artificially inflated because of the defendants' conductcomplained of herein; and
• whether the members of the Class have sustained damages and, if so, whatis the proper measure of damages.
19. Plaintiffs' claims are typical ofthe claims ofthe members of the Class, as plaintiffs
and members of the Class sustained damages arising out of defendants' wrongful conduct in
violation of federal law as complained of herein.
7
20. Plaintiffs will fairly and adequately protect the interests of the members of the
Class and have retained counsel competent and experienced in class and securities litigation.
Plaintiffs have no interests antagonistic to or in conflict with those of the Class.
21. A class action is superior to other available methods for the fair and efficient
adjudication of this controversy because joinder of all members of the Class is impracticable.
Furthermore, because the damages suffered by individual Class members may be relatively small,
the expense and burden of individual litigation make it impossible for the Class members
individually to redress the wrongs done to them. There will be no difficulty in the management of
this action as a class action.
22. Plaintiffs will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
• defendants made public misrepresentations or failed to disclose materialfacts during the Class Period;
• the omissions and misrepresentations were material;
• the common stock of the Company traded on the Nasdaq, an efficientmarket;
• the market reacted to public information disseminated by defendants;
• the misrepresentations and omissions alleged would tend to induce areasonable investor to misjudge the value of the Company's securities; and
• plaintiffs and the members of the Class purchased their Company stockbetween the time the defendants failed to disc:lose or misrepresentedmaterial facts and the time the true facts were disclosed, without knowledgeof the omitted or misrepresented facts.
21 Based upon the foregoing, plaintiffs and the members of the Class are entitled to
a presumption of reliance upon the integrity of the market.
8
SUBSTANTIVE ALLEGATIONS
Summary of Egregious Practices
24. Since 1999, Merrill Lynch internet research analysts have published on a regular
basis ratings for intern& stocks that were materially misleading because they did not reflect the
analysts' negative assessments of the companies. The analysts publicly hyped but privately
disparaged numerous companies in their pursuit of securing and maintaining lucrative investment
banking engagements for Merrill from those companies and increasing the compensation of research
analysts. Indeed, the research analysts often acted as quasi-investment bankers, including pitching
the client, marketing the offering and initiating and doing "follow-on" research coverage. In sum,
far from issuing independent and objective reports and ratings on interne companies such as Excite,
Merrill and its analysts issued biased reports to serve their own financial interests.
25. This is illustrated by a Blodget March 21, 1999 memorandum titled "Managing
the Banking Calendar for Internet Research," which was distributed to Co-Heads of U.S. Equity
Research and other senior Merrill Lynch bankers. Blodget communicated his expectation that a
minimum of 50% of his and his staff's time be committed to investment banking matters and
described his work schedule for one week as being divided "85% banking, 15% research."
26. Another Merrill Lynch inter-net analyst candidly admitted in a March 21, 2001
e-mail to another colleague that "[w]e'd win brownie points" if Merrill Lynch investment bankers
could "deliver[]" coverage to an issuer.
27. Merrill Lynch analysts internally acknowledged their lack of independence from
investment banking. A November 16, 2000 e-mail from analyst Kirsten Campbell to Blodget
stresses that "the whole idea that we are independent from banking is a big lie...." In fact, Merrill
9
Lynch research management internally acknowledged that "we are off base on how we rate stocks
and how much we bend backwards to accommodate banking, etc."
28. In an effort to appease clients and Merrill Lynch investment bankers, the internet
research group ignored the bottom two categories of the five-point rating system ("reduce" and
"sell") and used only the remaining ratings ("buy," "accumulate" and "neutral"), thereby converting
a published, purportedly objective five-point rating scale into a biased, undisclosed three-point
system . From the spring of 1999 to the fall of 2001, Merrill Lynch never published a single reduce
or sell rating on any stock covered by the internet group.
29. Merrill Lynch was successful in getting Blodget and its intemet analysts to issue
biased and favorable ratings and reports, which were contrary to their objective assessments, by
linking their compensation, at least in part, to the firm's investment banking business. For example,
an October 13, 2000 memorandum from Deepak Raj, then the co-head of global equity research at
Merrill Lynch, distributed the following requests to all equity analysts:
We are once again surveying your contributions to investment bankingduring the year . . . Please provide complete details on your involvementin the transaction, paying particular attention the degree that your researchcoverage played a role in origination, execution and follow-up. Please note,as well, your involvement in advisory work or merger acquisitions,especially where your coverage played a role in securing the assignmentand your follow-up marketing to clients. Please indicate where yourresearch was pivotal in securing participation in high yield offering.
(Boldface added.)
30. In a November 2, 2000 memorandum titled 1131( Contributions: Internet Team,"
Blodgett and the intemet research group responded, stating that the group participated in over fifty
successful or potential investment banking transactions resulting in $115 million for Merrill and
10
detailed the investment banking services rendered by his analysts, including initiation and follow-on
research coverage. Shortly thereafter, Blodget received a hefty increase in his compensation. His
annual compensation went from $3 million for 1999 to $12 million for 2001.
31. These egregious practices and policies are detailed in internal Merrill Lynch
documents released by the Office of the Attorney General of the State ofNew York on April 8, 2002,
Indeed, the Attorney General, based on the results of a ten month investigation, has obtained an
Order from the Supreme Court of the State of New York directing defendants to provide more
documents and testimony if requested and requiring Merrill Lynch to make disclosures about its past,
current, and future investment banking relationships with a corporate client. The firm aisn must
disclose in research reports how many buy and sell recommendations it has in a particular sector of
coverage. Merrill Lynch has reportedly reached an interim settlement relating to disclosures, but the
larger issues of possible criminal conduct and payment of restitution thr violations ofNew York state
securities laws are still unresolved.
Examples of Merrill Lynch's Lucrative Banking Relationships with Excite
32. Merrill had extensive investment banking relationships with Excite, which
described itself as a global media company offering broadband Internet connectivity, personalized,
web-based content and targeted advertising services.
33. On July 11, 1997, Excite sold 9,000,000 shares of common stock at a price of
$10.50 per share in its initial public offering. The managing underwriters of the offering were
Merrill Lynch and Morgan Stanley Dean Witter Gz. Co. Incorporated.
34. On August 6, 1997, Merrill lynch initiated coverage with a near-term accumulate
and a long-term buy rating.
11
35. In 1997, Merrill Lynch served as the exclusive financial advisor to Excite in a
warrant transaction with Cahlevision Systems Corp.
36. On August 13, 1998. Excite sold 2,500,000 shares of common stock at a price of
$46 1/8 per share in a secondary offering. The managing underwriters of the offering were Merrill
Lynch and Morgan Stanley Dean Witter.
37. In connection with the May 28, 1999 merger of At Home Corporation and Excite
Inc. (which merger resulted in Excite), Merrill Lynch served as At Home's financial advisor, earning
fees of approximately $10 million.
38. To maintain and enhance these lucrative relationships, defendants issued materially
misleading reports on Excite throughout the Class Period. Blodget was also motivated to issue such
reports because his compensation was linked to his contributions to Merrill Lynch's investment
banking business.
False and/or Misleading Statements and Omissions
39, Throughout the Class Period, defendants issued positive reports and ratings on
Excite which were totally inconsistent with their private assessments of the Company. Below are
some examples of such materially misleading statements.
40. On August 18, 1999, defendant Blodget introduced the "1999 Merrill Lynch
Holiday Basket -- a group of eight intemet stocks that we believe offer a sound way to play the
fimdamental strength and renewed investor enthusiasm we expect to see during the fall and holiday
shopping season." He said that the stocks in the Basket could "trade significantly higher (50%-
100%) by the end of the year." Defendant Blodget included Excite in the Basket with a short-term
accumulate and long-term buy rating, adding "{t]hese stocks are among the highest-quality in the
12
industry" and involved the "industry's leading companies." He further described Excite as "[Ole
leading cable broadband play, and the best place for advertisers to take advantage of the increased
capabilities of broadband advertising."
41. The market price and volume of Excite stock rose on Blodget's recommendation
and assessment of P:xcite to $40.063 on volume of 6,993,200 from the August 17 closing price of
$39.625 on volume of 5,006,900.
42. Blodget's recommendation and its positive impact on the market price of the
recommended stocks, including Excite, were reported in the national press. For example, the August
18, 1999 edition of The Seattle Times reported:
Merrill Lynch & Co. analyst Henry Bledget said holiday shopping willboost Internet sales and recommended shares of eight companies...sendingtheir shares higher.
The eight stocks could trade 50 percent to 100 percent higher by year's end,Blodget said. He also recommended that investors buy eToys, Excite atHome...These stocks "offer a sound way to play the fundamental strengthand renewed investor enthusiasm we expected to see during the fall andholiday shopping season," the widely followed Internet analyst wrote in areport to clients.
The stock of all eight companies climbed today...
Blodget is one of the most widely followed Internet analysts.
(Boldface added.)
43. Similarly, the August 19, 1999 issue of The New York Times reported that, "Mr.
Blodget, the Merrill Lynch analyst, recornrnended eight Internet stocks he saw as benefitting from
this year's holiday shopping...[and his picks rose." The August 19, 1999 Wall Street Journal
"Heard on the Street" column also reported on Blodget's "holiday basket" of eight Internet stocks
13
and the fact that his "picks got ali ft yesterday." The August 19, 1999 issue of The Washington Post
stated, "Shares of eight Internet companies got a boost when they were recommended by Merrill
Lynch analyst Henry Blodget, who said the firms are poised to benefit from stronger holiday e-
commerce and advertising sales....Excite at Home rose 43 3/4 cents to $40.06." See also the August
18, 1999 edition of the National Post ("U.S. Internet plays shot up after Henry Blodget, an analyst
with Merrill Lynch & Co., recommended the stocks of eight companies poised to benefit from
stronger holiday sales.").
44. On September 27, 1999, Blodget issued an Industry Report that reiterated support
of his Holiday Basket: "We continue to believe that the Internet stocks will have a strong Q4. Based
on what we view as favorable developments for the stocks in both the internet sector and the market
at large, we are reiterating the Buy on our '99 Holiday Basket..."
45. On October 18. 1999, Blodget issued a Company Report previewing Q3 and
reiterating a short-term accumulate and long-term buy rating for Excite. The report also commented
that Excite is "a collection of strong assets. We believe several developments point to the
accelerating growth of the cable broadband market...."
46. On October 29, 1999, Blodget, reporting on Excite, stated: "We, are maintaining
our Holiday Basket."
47. On November 23, 1999, and on December 21, 1999, defendants issued Industry
Reports again rating Excite as a short-term accumulate and long-term buy.
48. In February 2000, defendants reaffirmed the same rating.
49. On March 21, 2000, defendants issued a report again affirming the same short-term
accumulate, long-term buy rating and also characterizing Fehniary developments as having
14
"positive" implications for Excite stock. Of the six companies covered, only Excite got the positive
label; the others were evaluated as neutral.
50. On April 5, 2000, Merrill Lynch issued an Industry Report previewing earnings
for 1Q 2000 and rating Excite short-term accumulate and long-term buy.
51. On July 20, 2000, Blodget continued to positively rate Excite, adjusting his rating
only to a short-term and long-term accumulate.
52. On December 5, 2000, Blodget issued a Company Report reiterating his short and
long-term accumulate rating on the Company.
53. At the same titne defendants were issuing high ratings to Excite, they were private-
ly denigrating the stock.
54. For example, on December 29, 1999, defendant Blodget, despite having issued a
public short-term accumulate and a long-term buy for the Company, privately told a colleague that
the six month outlook for the stock is "flat," and that he didn't "see any real catalysts" for
improvement.
55. On June 3, 2000, Blodget was internally expressing an even more damming
conclusion: "ATHM [Excite] such a piece of crap." At that time, defendants public rating of the
Company remained a short-term accumulate and a long-term buy.
56. By December 1, 2000, Blodget, in internal emails, was recognizing the need to
"just start calling the stocks...like we see them, no matter what the ancillary business consequences
are," but neither he nor anyone else at Merrill Lynch actually changed the practice of issuing biased
reports.
15
57. On January 29, 2001, despite a public short and long-term accumulate rating on
Excite, Blodget privately told a colleague that he "doesn't think there's any reason to buy more"
Excite shares and that the Company is "falling apart."
58. The analyst reports and ratings described above concerning the Company were
materially false and rnisleading when made because they failed to disclose the true, contemporaneous
opinions of defendants about Excite and defendants' lack of independence.
59. These misleading statements artificially inflated, maintained or stabilized the price
of Excite stock throughout the Class Period to the injury of plaintiffs and the Class. As already
detailed, Merrill Lynch and Blodget's ratings and reports on Internet stocks such as Excite had
tremendous market impact. When they spoke, the market listened. During the Class Period, Excite
stock traded as high as $59.75. After the Class Period, the price dropped to about $2.00. On
April 19, 2002, the stock closed at $0.0041. If the defendants had revealed their true assessments
of the Company during the Class Period, its stock would have traded at substantially lower prices.
60. On June 20, 2001, the end of the Class Period, when defendant Blodget down-
graded Excite to a short and long-term neutral, he still did not disclose his true assessment about the
Company. Indeed, neither he, nor any other Merrill Lynch analyst ever downgraded the stock to
reduce or sell. At the time the Company filed for bankruptcy on September 28, 2001, defendants
were still maintaining their neutral rating.
61. Excite's stock was delisted from the Nasdaq as of October 23, 2001.
Revelations of Defendants Misconduct
62. Defendants' misconduct as to the ratings of Excite began to be revealed with the
April 8, 2002 tiling of an affidavit by Eric R. Dinallo, Chief of the Investment Protection Bureau of
the New York State Department of Law, and Of Counsel to the New York Attorney General, in New
16
York Supreme Court in connection with proceedings brought against Merrill Lynch and certain of
its officials under Article 23-A of the General Business Law. Based on that affidavit and exhibits,
the Supreme Court issued an order preliminarilv enj oining Merrill Lynch from issuing any rating or
analysts report unless the following disclosures were made therein: its investment banking
relationships with the rated Company during the three years preceding the issuance of a report,
whether Merrill Lynch "currently has or is attempting to obtain any investment banking relationship"
with the covered company, and information, on a percentage bases, "of the aggregate distribution,
across the various rating categories used by [Merrill Lynch], for all stocks in the sector or industry
group applicable to the [covered company]." Implementation of the Order was stayed until April
19, 2002.
63. The New York State Attorney General also announced that it is exploring the
possibility of criminal charges against the defendants and restitution of over $100 million
64. On April 18, 2002, Merrill Lynch and the Attorney General reached a preliminary
interim settlement, pursuant to which Merrill Lynch agreed to make certain disclosures in its reports
about its existing and future investment banking relationships with issuers covered by its ratings or
reports, including compensation received from corporate clients in the past 12 months and a
prominently placed acknowledgment that investors should assume that Merrill Is seeking, or will
seek investment banking and other business from the covered company." The issues of possible
criminal charges and restitution remain unresolved to date.
65. As the Attorney General stated on April 18: "TheD disclosures are necessary to
inform consumers and investors of the inherent conflict of interest at Merrill Lynch." He cautioned,
however, that "[a]lthough we are still negotiating, serious issues remain to be resolved before we can
reach a final ageement." He insisted that any such agreement must rernedy "fundamental structural
17
flaws" in Merrill's business and provide "permanent relief for the company' s state securities laws
violations."
66. The papers filed by the Attorney General' s Office demonstrate that the defendants
not only recommended the stock of Excite while having private reservations hut that such conduct
was systemic and affected numerous stocks. These defendants consistently recommended stocks,
despite clear misgivings, in pursuit of investment banking fees. Below are a few examples.
67. In 2000, Merrill Lynch sought investment banking business from internet company
GoTo.com ("GoTo") (now known as Overture Services, Inc.) in connection with a private placement
for a European subsidiary of GoTo. Merrill Lynch obtained the business by in part, promising that
defendant Blodget would initiate coverage of GoTo; "coverage" was understood to mean positive
coverage. At the same time, however, Blodget candidiy told an institution& investor that there was
nothing interesting about GoTo "except banking fees."
68. After winning the business, Merrill Lynch analyst Kristen Campbell ("Campbell")
began drafting a research report initiating coverage of GoTo. Her e-mails to defendant Biodget
reveal her awareness of the devastating financial results suffered by individual investors as a result
of defendants' misleading ratings:
if 2-2 means that we are putting half of meant retail into this stock becausethey are out accumulating it then i don't think that s the right thing to do.We are losing people money and i don't like it. John and mary smith arelosing their retirement because we don't want todd [Tappin, GoTo CFO] tobe mad at us.
69. In the same e-maiL Campbell also acknowledged that "the whole idea that we are
independent from banking is a big lie."
70. Other examples include publicly touting Lifeminders as a short-term accumulate
and ]ong-tenn buy to the public, but privately describing the company as a "POS" or piece of sh--;
18
and pushing 24/7 Media on the public as a short and long-term accumulate while in private referring
to the company as a "piece of sh[--]."
CLAIMS FOR RELIEF COUNT I
(Against All Defendants For Violations ofSection 10(b) and Rule 10b-5 Promulgated Thereunder)
71. Plaintiffs repeat and reallege each and every allegation contained above as if fully
set forth herein,
72. Each of the defendants: (a) knew or recklessly disregarded material adverse non-
public information about the Company which was not disclosed; and (b) participated in drafting,
reviewing and/or approving the misleading statements about the Company.
73. During the Class Period, defendants, with knowledge of or reckless disregard for
the truth, disseminated or approved the false statements specified above, which were misleading in
that they contained misrepresentations and failed to disclose material facts necessary in order to
make the statements made, in light of the circumstances under which they were made, not mislead-
ing.
74. Defendants have violated § 10(b) of the Exchange Act and Rule 10b-5 promul-
gated thereunder in that they (a) employed devices, schemes and artifices to defraud; (b) made
untrue statements of material facts or omitted to state material facts necessary in order to make state-
ments made, in light of the circumstances under which they were made, not misleading; or
(c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon the
purchasers of the Company stock during the Class Period.
75. Plaintiffs and the Class have suffered damage in that, in reliance on the integrity
of the market, they paid artificially inflated prices for the Company stock. Plaintiffs and the Class
19
would not have purchased the Company stock at the prices they paid, or at all, if they had been aware
that the market prices had been artificially and falsely inflated by defendants' false and misleading
statements.
COUNT II(Violations of Section 20(a) of
The Exchange Act Against Defendant Merrillf,vnch)
76. Plaintiff's repeat and reallege each and every allegation contained above as if fully
set forth herein.
77. Defendant Merrill Lynch acted as a controlling person of Blodget within the
meaning of Section 20(a) of the Exchange Act.
78. By reason of such wrongful conduct, Defendant Merrill Lynch is liable pursuant
to § 20(a) of the Exchange Act. As a direct and proximate result of these defendants' wrongful
conduct, plaintiffs and the other members of the Class suffered damages in connection with their
purchases of Company stock during the Class Period.
WHEREFORE, plaintiffs pray for relief and judgment, as follows:
(I) Determining that this action is a proper class action, designating plaintiffs as Lead
Plaintiff and certifying plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil
Procedure and plaintiffs counsel as Lead Counsel;
(2) Awarding compensatory damages in favor of plaintiffs and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;
(3) Awarding plaintiffs and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
20
(4) Such other and further relief as the Court may deem just and proper,
JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
DA I ED: April 22, 2002
POMERANTZ HAUDEK BLOCKGROSSMAN & GROSS LLP
jr/ /, L,, ___By. :, z 'By / 41"4ç Stanley M. 9rossman (SG-4544)Shaheen ltushd (SR-4256)Paul T. Curley (PC-8787)
100 Park Avenue, 26th FloorNew York, New York 10017Telephone: (212) 661-1100Facsimile: (212) 661-8665
THE LAW OFFICES OFRICHARD J. VITA, P.C.
Richard J. Vita77 Franklin Street, Suite 300Boston, Massachusetts 02110Telephone: (617) 426-6566Facsimile . (617) 357-1612
Attorneys for Plaintiffs
21
C211.117ICATION OF PLAINTIFFS
We, sandra a2air and Ronald Blair. make ti s declaration pursuant
to Section 21D(4)(2) of the securities Exchange Act of 1334.
We have reviewed the Complaint against Morrill Lynch & Co., Inc.
and Henry Blodget regarding thtir miarePresentetiona aod omissiona concerning
At Home Corporation d/hla TxcitisEome (''ExeLte") and authorize it filing.
3, we did Acbt puruhee6 oue Exite ettUritiie at the direction of
counsel mr in order to parcieipats in any private action arising under Tit/a I
of the Securities ;Exchange Act of 15134.
4. We are willing to boner de a rapeatentative party on tehalf o± a
class as set forth in the , Complaint, including providing testimony at
deposition and trial, 12 neceasaYy. we understand that the Couxt has the
authority to select the 11503t dear:Nate lead plaintiff in this ecticn and that
tIle Pomerantz firm May exercise its diacrction in determining whether to move
On my behalf for ARPointment as lead plaintiff.
5. The following are all or aur transactions in Excite secritise
during the Class Egri • d apecifiad jr the Comp1aint3
03/07/0c Ths hlairs, as jeint tenants, purchased 2S0 shares at $so.22
03/ 107/0c Sandta Blair, tbrouah IRA Account, purchooed 9 no ghares at $29-g7
03/07/00 Ronald Blair, through rRA Account, purchomed 000 sharesa. $29-93
03/07/0C Oandra glair and Donise Melo. as joint tenas=s. purchased 275
shares at $30-10.
6. nurine the three year period precedicp the igece on which this
certification is sigeed, We have' not sought to serve as a representative party
on behalf of a class under the federal reouriti.es laws.,
7, We agree not to accept any paymont for serving aa a representative
party on bahalf of the class aa aet forth iu tbe Complaint, beyond cur pro
rata share ot any recovery, except much reasonable Coate and expensee directly
relating to Ehe representation of the clams as ordered or approved by Ehe
COUrt.
,we declam under penalty of perjury that the foregoin 1.5 true and
correct. EXecuted i/ 2.0 11-% 002 , 4,t .:1)111,044.4e1-6 ,7/7e/IDate)
i ---_______-•
4,411-1 :
f13,..._Th Blair
••••••4216731a7--lek- 19;1:-.:e.N.-4.Ronald Blair