Investors who blamed faulty analyst information for their soured investments have been told to bark up another tree by a federal district court judge. Eight class action lawsuits filed against Morgan Stanley & Co. and its “Queen of the Internet” analyst Mary Meeker were dismissed last week.
The ruling from Judge Milton Pollack, a senior judge for the Southern District of New York, came on a second attempt by shareholders of onetime venture darlings Amazon.com and eBay Inc. to tie the analyst’s research to the firm’s investment banking business. Claims had originally been filed in August, but at that time Pollack called the suits an example of “abusive litigation” and tossed certain ones out. However, he gave other plaintiffs 30 days to file amended pleadings. Despite that, the eight remaining claims were dismissed without prejudice on Oct. 9.
Of the eight cases dismissed, which essentially claimed Meeker gave “inflated” ratings to companies in order to generate future investment-banking business for her firm, none can be refiled. According to Wolf Haldenstein Adler Freeman & Herz LLP of New York, which represented the plaintiffs, their clients had decided to “voluntarily dismiss this action.”
“This order should dissuade others from filing spurious investor claims simply to grab headlines, particularly now that they will be faced with the prospect of judicial sanctions if they do,” said a Morgan Stanley spokeswoman.
The Meeker case had I-banks and investors walking on eggshells; just months prior Merrill Lynch settled claims against its tech-star analyst Henry Blodget to the tune of $400,000 in an arbitration case. Merrill Lynch declined to comment on the recent Pollack decision.
“I was not surprised by the verdict. It’s factual knowledge that there are parallel functions in a single firm, and that in and of itself is fine,” said Charles P. Greenman, a New York-based litigator with Jenkens & Gilchrist Parker Chapin.
The fact that research may have proved wrong doesn’t make the firm’s functionality wrong, Greenman said. Cases such as these, citing violations of Rule 10b5, require specific, factual information as evidence there was wrong doing and a deliberate evil intent on the part of the analyst and/or the firm, he explained. “Failing to prove that nexus, that link,” was likely the downfall of the suit, Greenman said.
While noting the decision was “a comfort to the securities industry and their defense bar,” Greenman stated there was a distinction to be made between the decision in this “analyst” case and the “laddering” cases that stem from the IPO gold rush.
“The decision [with the Meeker case] would not answer the question of how those would go. It’s very different from the laddering cases and would not be useful in setting a guide,” said Greenman.
As news of the dismissal rippled through the market, shares of Morgan Stanley closed up $1.50 on Oct. 9 to $49.26. The stock closed at $52.80 last Thursday.