Shareholders of Exodus Sue Merrill
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NEW YORK (AP) _ Merrill Lynch & Co. Inc. and its former Internet analyst, Henry Blodget, have been sued in a class-action lawsuit on behalf of Exodus Communications Inc. shareholders.
The lawsuit alleges Merrill Lynch and Blodget violated federal securities law by issuing analyst reports on Exodus ``without any reasonable factual basis.″
The law firm of Kaplan Fox & Kilsheimer LLP, which is representing shareholders, also alleges the defendants failed to disclose a conflict of interest in using Blodget’s reputation and reports to obtain investment banking business. Additionally, the securities firm and its former employee are accused of not disclosing adverse information about Exodus Communications that allowed the stock to trade at inflated levels.
A Merrill Lynch spokesman declined to comment, noting that he hadn’t seen the lawsuit.
New York-based Merrill Lynch and Blodget have been targeted in similar lawsuits filed earlier this year.
In December 1999, Exodus Communications stock rose 15 percent to more than $165 a share after Blodget began covering the stock with near- and long-term ``buy″ ratings. By June 2001, the company’s stock had tumbled and was trading at less than $2 a share.
Exodus’ stock currently trades on the over-the-counter Bulletin Board.
The former Web-hosting company filed for Chapter 11 bankruptcy in September 2001. A federal judge approved its liquidation plan the following June. Exodus sold substantially all its assets to British global telecommunications company Cable & Wireless PLC for $560 million.
The shareholder lawsuit seeks to recover damages for investors who bought Exodus common stock between Dec. 8, 1999, and June 19, 2001.