Lou Dobbs to Testify on Analysts

Jul 25 2001

Members of Congress will turn to Lou Dobbs next week not for news of the markets, but for his assessment of the media's role in publicizing stock recommendations.

Dobbs' testimony will come in the next round of hearings on the integrity of Wall Street research, slated for next week, according to a source close to the hearings.

CNN refused to confirm that Dobbs would testify, saying only that he might do so.

The source said that the CNN Moneyline anchor will provide some context about the way the media publicizes research analysts and their stock recommendations to the general investing public.

The hearing, to be held next Tuesday, will be the second one on Wall Street research before the House subcommittee on capital markets. At the first, held last month, Rep. Richard Baker , chairman of the subcommittee, indicated that several more hearings would follow throughout the course of the summer in which the committee would ask representatives from the media, Wall Street and the regulatory bodies to testify. At last month's hearing, the president of an industry association for Wall Street investment banks testified, but no analyst or other Wall Street representative was present.

The credibility of Wall Street research analysts has been tarnished. They are being scrutinized by the Securities and Exchange Commission, the National Association of Securities Dealers and many individual investors who lost millions by following their recommendations. Critics say their firms' client relationships compromised the analysts' recommendations. Last week, Merrill Lynch settled a suit for $400,000 with a former client, who claimed that Henry Blodget, the bank's high-profile Internet analyst, misled him. Since the first hearing on the subject, two Wall Street banks - Merrill Lynch and Credit Suisse First Boston - have instituted new policies prohibiting analysts from buying shares in the companies they cover.

Nor has the media escaped blame. In addition to pumping analysts' images by way of magazine covers and in-depth profiles during the market's ascent, media outlets liberally included comments from analysts without disclosing possible conflicts of interest. That issue, too, has attracted the notice of Congress.

"Let me say a word about the financial media, whose impact in this may be greater than we now realize," Baker said in his opening remarks at the first hearing. "It is irresponsible reporting to quote unquestioningly irresponsible analysts and place them on magazine covers and turn them into rock stars."

Since that hearing, the NASD has proposed a rule that would require significant disclosures in all print and television appearances by Wall Street analysts.