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Blodget: We Remember Your Biased Bubble Advice

Remember Henry Blodget, the Merrill Lynch analyst who pumped up stocks in 2000 that he knew were terrible investments, in order to benefit himself and Merrill? He was sued by the SEC and paid $4M for his antics and banned from Wall Street for life in 2003, but since then he has been trying to weasel his way back into the exact same game using the Internet to carry his voice.

In 2003, the SEC alledged:

“Blodget aided and abetted Merrill Lynch’s fraudulent research on GoTo.com. Further, Merrill Lynch and Blodget published research on five other companies [24/7 Media, Inc.; LifeMinders, Inc.; Homestore.com, Inc.; Excite@Home; and Internet Capital Group, Inc.] that were not based on principles of fair dealing and good faith and did not provide a sound basis for evaluating facts, contained exaggerated or unwarranted claims, and/or contained opinions for which there was no reasonable basis.”

Despite all that, just this evening, a local ABC7 News affiliate reported that “a securities analyst, Henry Blodget, thinks Microsoft should buy Yahoo”. Hello?! Where is the disclosure that “analyst” Blodget was tossed out of Wall Street in 2003 for his biased and unethical recommendations at that time? Why are we listening to him again? The mainstream media is giving him a red carpet to pick up right from where he left off, fueling hype, affecting stock prices, all the while still being banned from Wall Street by the SEC. Now, Blodget is even being credited with causing Yahoo’s stock to jump 7 percent:

NEW YORK (Reuters) November 16, 2007 - Yahoo Inc (YHOO.O) shares rose nearly 7 percent on Friday on renewed speculation, sparked by former Wall Street analyst Henry Blodget that the Internet company could be a takeover target for Microsoft Corp (MSFT.O).

In case you didn’t get burned by Blodget’s advice in 2000, or have since forgotten, let’s review:

-In the summer of 2000, while he publicly pumped up the stock of InfoSpace, a company that was Interested in buying Merrill Lynch client Go2Net, in private emails Blodget admitted that he thought InfoSpace was a “piece of junk”.

-In September 2000, Blodget recommended LifeMinders (LFMN), and it was at $22 when he initiated coverage. Three months later it hit $3, but Blodget continued to recommend it because Merrill sought an investment banking relationship with LFMN. In regards to this, Blodget wrote to a colleague, “shame on me”.

-Blodget never once issued a “sell” recommendation on any Internet stock.

-A Manhattan lawyer won a $400,000 settlement from Merrill after arguing that Blodget’s advice was biased since he failed to disclose his conflict of interest.

-Blodget graduated from Yale with a major in history and no training in finance.

All this guy did was to jump on the dot com bubble bandwagon, say “buy buy buy” for stocks that he knew were junk and that his company had a vested interest in. That didn’t require a lick of talent, and his recommendations were in fact totally self serving and the advice he gave was completely opposite to the advice even he knew he should be giving. His two faced handling of stock recommendations coupled with the SEC ban means that no one should be taking any kind of financial advice from this guy ever. But here he is, back in the limelight, because the mainstream media is putting him there.

Who else did the mainstream media trust recently, only to turn out that they were totally incompetent? Right, none other than highly respected talk show host Oprah touted plastic surgeon Dr. Jan Adams as the next best thing since sliced bread. The Discovery Channel even gave him his own show. Too bad it turned out that he wasn’t board certified, has at least two alcohol related criminal convictions, has settled at least two malpractice suits, is being sued this week for leaving a giant sponge inside a patient, and operated on Kanye West’s mother the day before she died. Thankfully, Discovery has yanked his show in a reactionary move, but perhaps these media sources should have done their homework before touting Dr. Adams as such a great surgeon.

Wake up mainstream media: do your homework before quoting or trusting people as “experts”, and don’t think that just because a few years have gone by, a person has changed or should now be trusted. Accepting Blodget’s financial advice back into mainstream media is a collosal error in judgment. Today it’s “MSFT should buy YHOO”, tomorrow it’s “everyone go buy Pets.com and Webvan”. And if people don’t know anything about Blodget’s past, then they’ll listen to and act on that advice because it’s being relayed to them by reputable mainstream sources.

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Friday, November 16th, 2007 at 10:46 pm and is filed under Web Business. If you like this post why not subscribe to my full text RSS feed. You can leave a response, or trackback from your own site.