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Merrill's Dealings With Pasadena Firm Probed

April 14, 2002|TOM PETRUNO | TIMES STAFF WRITER

One chapter of the New York attorney general's report on alleged conflicts of interest within Merrill Lynch's Internet-analyst research group deals with the brokerage's relationship with GoTo.com, now called Overture Services, a Pasadena-based Internet search provider.

Merrill sought to provide investment banking business to GoTo in 2000, the report says. In September of that year GoTo chose Merrill to handle a private placement of stock for a European subsidiary of GoTo.

The report alleges that Thomas Mazzucco, a Merrill banker, committed to GoTo executives that the brokerage's research department would initiate coverage of the company.

When that coverage began in January 2001, the report says, an institutional investor e-mailed Merrill's Internet research chief, Henry Blodget, asking "what's so interesting about GoTo except banking fees????" Blodget replied: "nothin."

The report further details conflicts between Merrill analysts and investment bankers over the rating of GoTo stock, and alleges that a junior analyst solicited GoTo executives' comments on Merrill's initial draft report on the firm.

Merrill ultimately did not handle the European stock deal for GoTo, and lost a bid for other business from GoTo in spring 2001. Shortly thereafter, the report alleges, Merrill research downgraded GoTo's shares.

Merrill, in a statement, said there was no connection between the downgrade and the investment banking decision.

As for investors who bought GoTo on Merrill's initial recommendation in January 2001, they have made money if they've held on: The stock, $10 at that point, now is at $23.50.

Kasey Byrne, a spokesman for Overture Services, said the firm has been cooperating with the attorney general's probe. She said executives were "surprised and disappointed" by the report's details regarding Merrill, adding that the firm believes "we were a victim of Merrill's practices."

To read the attorney general's report on the Internet, go to: www.oag.state.ny.us/home .html.

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