Judge dismisses Merrill dot-com suits

A judge throws out two lawsuits that alleged Merrill Lynch was responsible for losses after the dot-com bubble burst, saying the plaintiffs lost investments "fair and square."

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A federal judge dismissed two class-action suits against Merrill Lynch that alleged its analysts produced fraudulent research that led to heavy investor losses when the dot-com bubble burst.

The ruling, announced Tuesday, laid the blame squarely at the feet of retail investors--whom the judge referred to as "high-risk speculators" for taking "unjustifiable risks" in "extremely volatile and highly untested stocks." Judge Milton Pollack of the Federal District Court in New York was referring in his ruling to the stocks of 24/7 Real Media and Interliant, which tumbled from their peaks when the stock market collapsed in 2000.

As the downturn gathered speed, many researchers kept publishing glowing notes that urged investors to buy stocks that were already in a tailspin. Even the U.S. Congress tried to blame the faltering economy on Wall Street's analysts.

Since that time, investment banking firms have faced a growing number of class-action lawsuits by groups of investors alleging that the brokerages violated securities laws by issuing false or misleading analyst reports as they tried to drum up investment banking businesses from the companies covered in the research.

Tuesday's ruling, especially in light of its scathing language against the plaintiffs, is a seismic victory for investment houses such as Merrill that face a long list of similar class-action suits.

"Considering all of the facts and circumstances of the cases at bar, and accepting all of plaintiffs' voluminous, inflammatory and improperly generalized allegations as true, this court is utterly unconvinced that the misrepresentations and omissions alleged in the complaints have been sufficiently alleged to be cognizable misrepresentations and omissions made with the intent to defraud," Pollack wrote in his ruling.

These high-risk investors "now hope to twist the federal securities laws into a scheme of cost-free speculators' insurance" but lost their investments "fair and square," he added.