Analysts Can Breathe Easier After Meeker Ruling

Aug 22 2001

NEW YORK, Aug 22 -- Wall Street analysts aren' off the hook yet -- but they can breathe easier after a federa judge on Tuesday threw out a securities fraud lawsuit agains investment bank Morgan Stanley & Co. <MWD.N> and it influential Web analyst Mary Meeker.

The ruling gives disgruntled investors an opportunity t file an amended complaint -- and thus have another shot a holding Meeker and Morgan Stanley liable for stock losses. Bu plaintiffs' lawyers -- who claim Meeker's research was tainte because it was meant to win banking business from the companie she recommended -- will have to present far more specifi claims than those supported by press stories they excerpted.

"This is not conclusive proof that these cases can't b won, but it is a straw in the wind that shows there ar substantial barriers and obstacles before you can convert statement of opinion into securities fraud," said Jack Coffee a professor at Columbia Law School.

"It's much easier to plead an action that says a compan overstated its income by $5 a share than to plead an actio that says, when so-and-so stated their opinion that thi company was a great buy, they really had a secret bias," h said.

Moreover, the tenor of the judge's ruling -- whic lambasted the complaint as a "collection of market gossip" based on press "tidbits" -- indicates that lawyers seeking t file lawsuits against analysts generally may face a skeptica judiciary.

The investors suing Meeker "don't owe her any of thei profits, now they want her to take their losses," sai U.S. District Judge Milton Pollack in an interview with Reuter on Wednesday.

"It's one thing if there was an advisory contract of som kind, and claimed a breach," said Pollack, judge in his mid-90s who has handled many securities law cases.

"But the complaint doesn't say if they are customers of Morga Stanley, or any advisory contract with her."

In his ruling, Judge Pollack addressed a lawsuit seekin class action status on behalf of investors in online retailer

Amazon.com Inc. <AMZN.O>, but also referenced similar lawsuit concerning media giant AOL Time Warner Inc. <AOL.N> and onlin auctioneer EBay Inc. <EBAY.O>. Each of the suits was brought i recent weeks by law firms Wolf Haldenstein Adler Freeman & Herz, and Schiffrin & Barroway.

Judge Pollack is "saying this complaint is totall inadequate given current standards of pleading," which wer heightened by the Private Securities Litigation Reform Act o 1995, said Henry T.C. Hu, a law school professor at th University of Texas. "Plaintiffs have to do more than downloa Nexis."

By requiring plaintiffs to allege more specific facts, th decision may deter them from proceeding with the lawsui because of expense, Hu said.

"Plaintiffs' lawyers are very much driven by the economic of litigation," Hu said. "If you have to allege mor particularized facts, it costs you more to prepare th complaint, to do the due diligence necessary to prepare detailed enough complaint."

The tone of Pollack's decision also does not bode well fo the plaintiffs, Hu said.

"Judge Pollack is an extremely good judge, an outstandin judge; he is very experienced in securities matters," he said.

"He would not have used such language unless he felt ver strongly about this, and the fact that he is so experienced i securities matters makes it all the more telling."

In his ruling, Judge Pollack termed the "improprieties" i the complaint against Meeker and Morgan Stanley as "gross an unrestrained." He also stated that "the Complaint is hopelessl redundant, argumentative, and has much irrelevancy an inflammatory material."

One of the lawyers who brought the complaints agains Meeker, Fred Isquith of Wolf Haldenstein, said he isn't sur how he will proceed following the judge's ruling. Isquith plan to discuss the ruling with his clients and his co-counsel Richard Schiffrin of Schiffrin & Barroway, once Schiffri returns from vacation, he said.