By now you probably know all about the shell game that many Wall Street analysts have been accused of playing with "buy," "hold" and "sell" ratings.
But former star analyst Henry Blodget and analysts in the Internet group at Merrill Lynch & Co. Inc. in New York apparently had other appellations for some of the dot-com wonders that ultimately crashed and burned in the market downturn.
Would you believe "crap" and "dog"?
Those were two of the views that the group's analysts expressed in private e-mails describing some of the companies that they were touting in published research as good investments.
If only they had told us.
But it took Eliot Spitzer, the attorney general of New York state, to uncover the e-mails during a 10-month investigation into the relationship between Merrill's analysts and the company's investment banking arm.
Besides constituting the first hard evidence that research was slanted to please investment-banking clients, the e-mails raise questions about just how serious Merrill and other Wall Street firms are about reforming the business.
Merrill has taken the lead among brokerages on Wall Street to reduce the potential for conflicts of interest between analysts and the companies they cover. The New York Stock Exchange and the Washington-based National Association of Securities Dealers also have proposed changes.
But none of the proposals categorically sever the relationship between investment bankers and analysts - one of Mr. Spitzer's stated goals.
In fact, settlement negotiations reportedly broke down over Mr. Spitzer's insistence that Merrill agree to spin off its research division as a separate company.
Merrill executives, according to published reports, claimed that such a move was impossible because research does not pay for itself. A number of independent research firms, however, would beg to differ.
Scott Cleland, founder and chief executive of The Precursor Group in Washington, one of those independent research firms, is heading up an effort to create what he calls the InvestorSide Research Association.
Joining the effort are two other independent research firms, Argus Research Corp. and the Eagan-Jones Rating Co.
Companies have made a business of unbiased research for years. Argus, based in New York, has been providing independent research and marketing information since 1934.
But these research firms aren't well known, at least among average investors, because the firms never have been able to match the marketing clout or the brand recognition of Wall Street's major brokerages.
That may change as the association grows and gets its message out.
It certainly espouses a lofty goal: "To increase investor and pensioner trust" in capital markets through "investment research that is financially aligned with investor interests."
Mr. Cleland says his company follows strict guidelines to avoid conflicts of interest and bias in its research.
The company does no investment banking, does not manage money or own a stake in any company, does not allow analysts to trade stocks and does no stock trading for proprietary gain on its own.
Mr. Cleland says the company gets paid through "directed trading commissions" if its research helps investors, something he calls a "market-driven, merit-based business model."
Needless to say, Mr. Cleland blames the current state of Wall Street research for many of the problems that led to the collapse of Houston's Enron Corp. and the dot-com meltdown.
Faulty research, he asserts, allowed Enron to get away with shady accounting practices and failed to uncover the gross overcapacity in the telecommunications industry that led to the bankruptcy of such firms as Global Crossing Ltd. of Rochester, N.Y.
The organizers of InvestorSide are recruiting other members and looking for individuals who would be interested in sitting on the association's board of directors.
But more than anything, the association's formation should convince Mr. Spitzer - if any convincing is necessary - that his goal of severing research from investment banking is reasonable and should be pursued.
