Debases Kankilal, a doctor based in New York, claimed that "overly bullish" research published by Henry Blodget cost him around AU$978,000. Kankilal alleged that Blodget recommended buying shares in Web firm InfoSpace so that Merrill Lynch received banking fees from the firm.
Blodget had backed InfoSpace shares as a good investment even as they began to fall from their top value of around US$132. A InfoSpace share is now worth around US$3.30 -- less than three percent of its top value.
Merrill Lynch was not involved in InfoSpace's IPO, but according to Reuters the bank did work with a second Web company that was subsequently bought by InfoSpace. Kankilal claimed that this meant Merrill Lynch had a potential conflict of interest.
Merrill Lynch had previously strongly denied that Blodget -- who made his name by predicting that Amazon shares would reach US$400 -- was at fault. Despite paying up, the company does not admit any wrongdoing. "The matter was resolved to avoid the expense and distraction of protracted litigation," said the investment bank in a statement.
Since the dot-com crash last year, many analysts have been accused of hyping Internet stocks that were already over-valued. Merrill Lynch's move seems likely to lead to other such damages claims. Kankilal's lawyers have already said they are considering claims against two other analysts -- Mary Meeker of Morgan Stanley and Salomon Smith Barney's Jack Grubman.
