But there is a limit to crying foul if you chose highly risky investments. It is gambling. And there is a good chance you will lose, especially if you don't know how the game is played.
I was fully prepared to criticize Senior U.S. District Judge Milton Pollack for dismissing two lawsuits against Merrill Lynch & Co. recently.
In one case, investors alleged that analysts' research reports were "materially" misleading in violation of federal securities laws. In a second case, an investor in the Merrill Lynch Global Technology Fund alleged that the company failed to disclose that the fund had invested in companies with which the broker-dealer had an investment-banking relationship.
When I first heard about Pollack's rulings, I was furious. Here we go again, I told a friend. A judge blaming investors. I thought this was another example of telling investors they were stupid for trusting Wall Street.
Then I read Pollack's decisions.
In these cases, Pollack didn't believe the investors were victimized. He essentially said that the plaintiffs were either gambling with high-risk investments or should have been aware of the conflicts of interest.
Pollack also drew a distinction between lawsuits involving alleged fraud (as in those involving WorldCom and Enron) and others in which investors were responsible for their own actions.
Pollack wrote: "Seeking to lay the blame for the enormous Internet bubble solely at the feet of a single actor, Merrill Lynch, plaintiffs would have this court conclude that the federal securities laws were meant to underwrite, subsidize and encourage their rash speculation in joining a freewheeling casino that lured thousands obsessed with the fantasy of Olympian riches, but which delivered such riches to only a scant handful of lucky winners.
"Those few lucky winners, who are not before the court, now hold the monies that the unlucky plaintiffs have lost -- fair and square -- and they will never return those monies to plaintiffs. Had plaintiffs themselves won the game instead of losing, they would have owed not a single penny of their winnings to those they left to hold the bag (or to defendants)."
Pollack pointed out one telling truth about far too many investors. They often aren't informed of, or choose to ignore, the risks they are taking with their money.
For example, over the past several weeks, I've written many columns warning investors about buying stock in companies under bankruptcy protection. In many cases, these companies (WorldCom, Kmart) have actually come out and said their current stock would be worthless once the company emerges from bankruptcy.
And still small investors buy the stock.
One woman recently wrote: "I have several friends, including a bank manager, who have recommended that I purchase WorldCom stock now and hold on to it until after the [company's] restructuring. Is this recommendation in error?"
I know it's hard to figure out who or what information to believe these days, but you definitely shouldn't invest based solely on investment tips (and uninformed ones at that) from friends. If this woman buys current shares of WorldCom and keeps it until the company emerges from bankruptcy, she will have purchased expensive toilet paper.
Pollack also didn't buy the claim from investors who felt cheated because Merrill Lynch didn't disclose the conflicts of interest between its research department and its investment-banking operation.
"Again, this claim fails if for no other reason than because the information regarding the alleged conflict of interest was public knowledge, and had been for years," Pollack wrote.
Pollack cited numerous newspaper and magazine articles dating back to 1995 in which investors were told, among other things:
• "Investors, journalists and others who deal with the Street would do well to keep in mind that, often times, the analyst is wearing two hats." (Wall Street Journal, 1996)
• "The relationship between the analysts and the investment banking business . . . pays their bills." (Boston Globe, 1996)
• "Brokerage firms are not about to break up the money machine that pairs analysts with dealmakers. And analysts are not about to risk offending the companies they cover. Woe to the investor who doesn't keep these two ideas in mind before investing on a stock recommendation." (BusinessWeek, 1998)
And here's another fact Pollack cited that I found astounding: The investors admitted they hadn't seen or read the analyst reports that they claimed were misleading.
How can you have been misled by something you didn't even read?
There is no doubt that many investors have been harmed by various actions of people working for Wall Street investment firms and publicly traded companies. But there is a limit to crying foul if you chose highly risky investments. It is gambling. And there is a good chance you will lose, especially if you don't know how the game is played.
Just as it is with the law, ignorance is no excuse. If you don't find out what you don't know before high-risk investing, don't expect to win your money back by telling a tale of woe to a judge -- at least not to Pollack.
http://www.washingtonpost.com/wp-dyn/articles/A3426-2003Jul16.html
I was fully prepared to criticize Senior U.S. District Judge Milton Pollack for dismissing two lawsuits against Merrill Lynch & Co. recently.
In one case, investors alleged that analysts' research reports were "materially" misleading in violation of federal securities laws. In a second case, an investor in the Merrill Lynch Global Technology Fund alleged that the company failed to disclose that the fund had invested in companies with which the broker-dealer had an investment-banking relationship.
When I first heard about Pollack's rulings, I was furious. Here we go again, I told a friend. A judge blaming investors. I thought this was another example of telling investors they were stupid for trusting Wall Street.
Then I read Pollack's decisions.
In these cases, Pollack didn't believe the investors were victimized. He essentially said that the plaintiffs were either gambling with high-risk investments or should have been aware of the conflicts of interest.
Pollack also drew a distinction between lawsuits involving alleged fraud (as in those involving WorldCom and Enron) and others in which investors were responsible for their own actions.
Pollack wrote: "Seeking to lay the blame for the enormous Internet bubble solely at the feet of a single actor, Merrill Lynch, plaintiffs would have this court conclude that the federal securities laws were meant to underwrite, subsidize and encourage their rash speculation in joining a freewheeling casino that lured thousands obsessed with the fantasy of Olympian riches, but which delivered such riches to only a scant handful of lucky winners.
"Those few lucky winners, who are not before the court, now hold the monies that the unlucky plaintiffs have lost -- fair and square -- and they will never return those monies to plaintiffs. Had plaintiffs themselves won the game instead of losing, they would have owed not a single penny of their winnings to those they left to hold the bag (or to defendants)."
Pollack pointed out one telling truth about far too many investors. They often aren't informed of, or choose to ignore, the risks they are taking with their money.
For example, over the past several weeks, I've written many columns warning investors about buying stock in companies under bankruptcy protection. In many cases, these companies (WorldCom, Kmart) have actually come out and said their current stock would be worthless once the company emerges from bankruptcy.
And still small investors buy the stock.
One woman recently wrote: "I have several friends, including a bank manager, who have recommended that I purchase WorldCom stock now and hold on to it until after the [company's] restructuring. Is this recommendation in error?"
I know it's hard to figure out who or what information to believe these days, but you definitely shouldn't invest based solely on investment tips (and uninformed ones at that) from friends. If this woman buys current shares of WorldCom and keeps it until the company emerges from bankruptcy, she will have purchased expensive toilet paper.
Pollack also didn't buy the claim from investors who felt cheated because Merrill Lynch didn't disclose the conflicts of interest between its research department and its investment-banking operation.
"Again, this claim fails if for no other reason than because the information regarding the alleged conflict of interest was public knowledge, and had been for years," Pollack wrote.
Pollack cited numerous newspaper and magazine articles dating back to 1995 in which investors were told, among other things:
• "Investors, journalists and others who deal with the Street would do well to keep in mind that, often times, the analyst is wearing two hats." (Wall Street Journal, 1996)
• "The relationship between the analysts and the investment banking business . . . pays their bills." (Boston Globe, 1996)
• "Brokerage firms are not about to break up the money machine that pairs analysts with dealmakers. And analysts are not about to risk offending the companies they cover. Woe to the investor who doesn't keep these two ideas in mind before investing on a stock recommendation." (BusinessWeek, 1998)
And here's another fact Pollack cited that I found astounding: The investors admitted they hadn't seen or read the analyst reports that they claimed were misleading.
How can you have been misled by something you didn't even read?
There is no doubt that many investors have been harmed by various actions of people working for Wall Street investment firms and publicly traded companies. But there is a limit to crying foul if you chose highly risky investments. It is gambling. And there is a good chance you will lose, especially if you don't know how the game is played.
Just as it is with the law, ignorance is no excuse. If you don't find out what you don't know before high-risk investing, don't expect to win your money back by telling a tale of woe to a judge -- at least not to Pollack.
http://www.washingtonpost.com/wp-dyn/articles/A3426-2003Jul16.html
