Ongoing analyst scandal forces PR rethink at Merrill

NEW YORK: Merrill Lynch has quickly and deliberately shifted its PR strategy regarding the analyst scandal that has besieged the firm for nearly a month. A source close to the situation has admitted that PR blunders were made early in the imbroglio, and that those involved have been attempting to repair the damage.

NEW YORK: Merrill Lynch has quickly and deliberately shifted its PR strategy regarding the analyst scandal that has besieged the firm for nearly a month. A source close to the situation has admitted that PR blunders were made early in the imbroglio, and that those involved have been attempting to repair the damage.

Merrill has retreated from its initial strategy of attacking New York Attorney General Eliot Spitzer's investigation of its sell-side research department. The firm is now admitting that his probe may have some merit.

"There is no basis for the allegations made today by the New York Attorney General,

read the firm's initial response. "His conclusions are just plain wrong. The allegations reveal a fundamental lack of understanding of how securities research works within the overall capital-raising process."

That response, which remains posted on Merrill's website, now appears to be in discord with the stream of public apologies issued by Merrill's top brass in recent weeks.

"It made no sense to issue that statement,

said the source. "Why attack Spitzer when he has the power not only to haul you into court, but to shut you down? Plus, why make statements you know you won't be able to back up later - that's basic PR."

Merrill spokespeople refused to be quoted on their PR strategy. The New York-based firm has reportedly retained some top-tier specialists in crisis PR, including Kekst & Company and Burson-Marsteller.

Spitzer's investigation alleges Merrill encouraged its research analysts to remain bullish on the firm's investment banking clients, despite the fact that the analysts privately harbored doubts about their own recommendations.

The investigation is centered on internal e-mails, which Spitzer subpoenaed from Merrill. The e-mails show analysts disparaging the same stocks they were recommending.

Merrill's public shift in strategy seemed to begin at Merrill's annual shareholder meeting on April 26, when chairman and CEO David Komansky surprised many by publicly apologizing for the scandal. Komansky drew specific attention to the controversial e-mails

"The e-mails that have come to light are very distressing and disappointing to us,

said Komansky. "They fall far short of our professional standards and some are inconsistent with our policies."

Merrill executives are reportedly attempting to quietly iron out a settlement with Spitzer, who has threatened to pursue criminal and civil charges against the firm.

Despite the efforts, the scandal has only grown and now threatens to ensnare other Wall Street Firms. The SEC has begun its own investigation of Wall Street's research practices, while the US Justice Department and other state attorneys general have expressed interest in joining the Spitzer probe.

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