HP and Merrill on defensive over internal comms leaks

PALO ALTO, CA and NEW YORK: Electronic and telephone communication between staff that was thought to be private caused major PR problems for two high-profile companies last week.

PALO ALTO, CA and NEW YORK: Electronic and telephone communication between staff that was thought to be private caused major PR problems for two high-profile companies last week.

A voicemail from Hewlett-Packard CEO Carly Fiorina to CFO Bob Wayman was sent anonymously to the San Jose Mercury News.

The message - the authenticity of which was verified by Wayman - had Fiornia saying, "We may have to do something extraordinary for those two to bring 'em over the line here.

She was referring to Deutsche Bank and Northern Trust.

HP is the target of a lawsuit by Walter Hewlett, the key opponent to the Compaq merger. Hewlett claims the company misrepresented data to sway shareholders, and used the possibility of banking business to persuade Deutsche Bank to vote for the merger. The voicemail is being cited as proof.

Now HP is trying to find out who leaked it in the first place. "HP does not by practice disclose details of our internal communications processes,

read a statement from spokesperson Rebeca Robboy. "The incident regarding unauthorized disclosure of a company voicemail is a very serious matter, and we are taking the necessary steps."

Meanwhile, New York Attorney General Eliot Spitzer used internal e-mails from Merrill Lynch to level charges against the firm that it used its sell-side research department to play cheerleader for some of Merrill's investment banking clients.

Spitzer said the e-mails demonstrated that analysts were pressured from within the firm to maintain positive ratings for shares of companies for whom Merrill had done investment banking work - such as underwriting companies' IPOs.

Spitzer alleged that the electronic correspondence between analysts and others at the investment bank shows a pattern of analysts remaining bullish on the firm's banking clients, against their better judgment. Spitzer's investigation has thus far resulted in a provisional court order against Merrill, and could result in criminal charges - possibly opening the floodgates for a new round of lawsuits by investors who claim to have been duped by Merrill's research.

These charges are not new. Wall Street sell-side research has had a credibility problem for a few years, and most streetwise investors now understand that as long as investment banking remains Wall Street's revenue locomotive, it will be a while before a bank's "independent" research will truly be independent of that reality.

Nevertheless, Spitzer's case centers around private e-mails that are now part of a formal investigation. So Merrill appeared taken aback by the allegations, and came out swinging.

In a strong rebuke of Spitzer's charges, the firm released a statement that read, "His conclusions are just plain wrong. We are outraged that we were not given the opportunity to contest these allegations in court."

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