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Monday, 20 May, 2002, 21:32 GMT 22:32 UK
Merrill deal may not include guilty plea

New York's top law-enforcement official has set his sights on resolving the state's fraud case against brokerage firm Merrill Lynch this week.

But comments from New York state attorney general Eliot Spitzer have left some investors fearing he may settle for far less than they had hoped for.

A deal being weighed by Mr Spitzer may not require Merrill Lynch to admit guilt or demand the establishment of a restitution fund by which to reimburse investors, who lost millions based on the firm's stock advice.

That could make it difficult for investors to sue Merrill for the actions of its analysts, who stand accused of conflicts in interest.

A $50m fine is not even a slap on the wrist - it's a mosquito bite

John Lawrence Allen, attorney
Last month, Mr Spitzer charged Merrill with disseminating "tainted" advice on certain once-high-flying technology stocks, warning some investors to steer clear of them while advising others to buy.

'A mosquito bite'

The attorney general is weighing a settlement in which Merrill would agree to separate its stock research and investment banking arms and pay a fine of $50m-100m (34m-69m) - while admitting no guilt.

To those stung by losses in technology stocks, it means Merrill gets off cheap.

New York Attorney General Eliot Spitzer
After coming out fighting, Mr Spitzer has softened
"A $50m fine is not even a slap on the wrist," says New York securities lawyer John Lawrence Allen, who represents some of the Merrill clients who lost money based on the broker's recommendations.

"It's a mosquito bite," he says of the proposed fine, noting that they amount is equal to about what Merrill earns in one day.

Mr Allen told BBC News Online that Mr Spitzer's 10-month investigation into Merrill's practices might have little effect other than putting him in the limelight in order to further his political career.

A settlement without an admission of guilt, Mr Allen says, will not bring relief to the thousands of investors who lost millions of dollars following Merrill stock recommendations.

For its part, Merrill Lynch declined to comment on the case, which is customary among corporations involved in litigation.

Further delay

Still, the attorney general's sudden damping down of expectations in his negotiations with Merrill begs the question why, given that his case seemed so watertight.

As part of the evidence that state gathered in its fraud case against Merrill Lynch, Mr Spitzer pointed to several damning e-mails from Merrill analysts that showed them disparaging companies they publicly touted.

In April, Mr Spitzer said Merrill Lynch's stock ratings contained "misleading information" which was "biased and distorted" because the bank had attempted to "secure and maintain lucrative contracts for investment banking services".

Negotiations are still ongoing between Merrill and the attorney general's office - so far with little success.

Those familiar with the negotiations say a 23 May deadline exists for completing the settlement but hasten to add such cut-off dates have been extended in the past.

The result, they say, may mean further delays despite Mr Spitzer's expressed desire last week to wrap up negotiations.

Jacob Zamansky, lawyer
"I had proposed that Merrill submit a restitution fund so that victims could easily claim compensation"
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