Merrill Lynch accused of misleading the public

The Attorney General of New York has launched a scathing attack on Merrill Lynch and accused it of offering biased and distorted investment advice designed to boost the bank's business.

Eliot Spitzer accused Merrill Lynch of giving tainted investment advice in an attempt to secure lucrative investment banking business.

He claimed the bank's stock ratings contained misleading information aimed at aiding corporate brokerage clients but harming individual investors.

The public, Spitzer said, was led to believe that analyst reports on companies and stocks were independent but in fact Merrill Lynch recruited the analysts to help lure new investment banking clients.

At a New York press conference, Spitzer called the bank's actions an outrageous betrayal of corporate clients' trust and a shocking abuse of the system, perverted to produce greater revenues for the firm.

Merrill Lynch jeopardises the integrity of the marketplace, he added.

As part of a 10-month investigation into links between the financial house and its research arm, Spitzer obtained a court order forcing the bank to disclose in-depth information to its investors.

The court order will bring into the open a scandal that started with an investigation into overly positive recommendations of shares by former Merrill Lynch analyst Henry Blodget.

Issued by a New York State Supreme Court Judge, the order calls on the firm to disclose in its published research whether a company is a current or prospective client. It also forces the bank to make these changes immediately.

Merrill Lynch said it was angered and surprised by the comments and actions taken by Spitzer and called on the judge to award it more time to comply. The court responded by extending the deadline until Thursday.

In a statement, Merrill Lynch said: "There is no basis for the allegations made today by the New York Attorney General. His conclusions are just plain wrong. We are outraged that we were not given the opportunity to contest these allegations in court."

But the bank might yet get its day in court. Spitzer has yet to file criminal proceedings against the bank or its employees.

Sources at the bank claim it has been trying to settle with Spitzer for many weeks but has failed to reach a conclusion because of the Attorney General's insistence that Merrill Lynch spin-off its research division, according to reports in the New York Times