Mary - you're up next.
Morgan Stanley Dean Witter & Co.'s star Internet analyst is in even more hot water.
A class action suit on behalf of Amazon and eBay shareholders - two bubble stocks on which she was bullish for years - was filed yesterday by Philadelphia law firm Schiffrin & Barroway.
The suit names Meeker and her firm and alleges she pumped up Internet stocks so that her company could land lucrative underwriting gigs. Joe Schmo investors purchased stock at inflated prices from Aug. 1, 1998 through Jan. 22, 2001, thanks to Morgan Stanley not disclosing all the facts, said the suit.
It also says Morgan Stanley kept quiet about her real relationship with eBay and Amazon while she was making her recommendations.
A Morgan Stanley statement said the firm had only seen the press release, and not the suit.
"Mary Meeker is one of the most respected analysts on Wall Street . . . The allegations are unfair, inaccurate, and cannot be supported in court."
"Congressional hearings on Tuesday reported that analysts were presented as impartial umpires but were compensated like cheerleaders," said John Coffee, a Columbia University Law Professor specializing in class actions and white collar crime. "It's not a big surprise that the next day, some law firm goes after the best known of the Internet gurus."
He added that the Henry Blodget case, which was settled last week by Merrill Lynch, may have opened the floodgates. "That $400,000 was 80 percent of the settlement, which suggests the Wall Street firm was very nervous and didn't want to give full disclosure in court."
The suit alleges that "Meeker's ratings, recommendations and positive statements regarding eBay were not based on objective analyses but rather on her desire to attract and retain eBay and Amazon as a Morgan Stanley banking client."
Star analysts are often trotted out at road shows in front of institutional investors. "It's a way of saying ‘We have this guru who can recommend this stock in the future and make it go up,' " said Coffee.
Meeker's compensation was directly tied to the amount of investment banking business she generated for Morgan Stanley, according to the complaint.
As Morgan Stanley's "star investment banker," she allegedly earned some $15 million in 1999.
Schiffrin & Barroway lawyers refused to comment on the suit yesterday beyond putting out a press release. The company is trawling for eBay and Amazon stockholders who think they have been stiffed, but the suit could drag on for years. "A bigger plaintiff, such as a huge pension fund, could come along and take over as the lead claimant, said Coffee.
The suit said there was no "Chinese Wall" in Morgan Stanley to divide the investment bankers - those who take companies public - and research analysts, who are meant to be honest about a company's prospects of making a buck.