Website's instant posts of Wall St research banned

NEW YORK (Reuters) - A Manhattan federal judge on Thursday barred the financial news service Theflyonthewall.com from issuing immediate news about Wall Street analyst recommendations, often before the research is shared with clients.

Ruling in favor of Bank of America Corp's Merrill Lynch unit, Barclays Plc and Morgan Stanley, U.S. District Judge Denise Cote said Theflyonthewall.com engaged in "systematic misappropriation," essentially getting a "free ride" from its quick publication of upgrades and downgrades that can move stocks higher and lower.

Cote issued a permanent injunction requiring the 30-employee, Summit, New Jersey-based company to wait until 10 a.m. to report research that was issued before the market opens, and at least two hours for research issued thereafter.

While the banks had sought longer delays, Cote said: "This time frame preserves incentives for the firms to create and disseminate research reports to their investor clients, while still recognizing the inevitable, fast-moving, and widespread informal communication of recommendation on Wall Street."

The judge also ordered Theflyonthewall.com to pay $12,750 in damages.

Glenn Ostrager, a lawyer representing Theflyonthewall.com, and R. Bruce Rich, a lawyer representing the banks, did not immediately return calls seeking comment.

Merrill spokesman Bill Halldin called the ruling a "milestone in regaining control over the distribution of our proprietary research and preserving the value of our investment ideas for our clients." Morgan Stanley spokeswoman Carissa Ramirez said the ruling "recognizes and protects each bank's intellectual property." Barclays had no immediate comment.

Lehman Brothers Holdings Inc had been one of the plaintiffs when the lawsuit was filed in 2006. Barclays took its place when it bought much of that bank's operations.

It was not immediately clear how the 89-page ruling might affect the ability of real-time financial news providers such as Thomson Reuters, Dow Jones Newswires and Bloomberg LP to tell clients of potentially market-moving research.

The judge noted that Merrill Lynch and Morgan Stanley have already taken steps to limit or delay the media's ability to obtain analyst research. Other banks have acted similarly.

EXCLUSIVITY MATTERS

In her opinion, Cote said the value of analyst research derives not just from its quality, but also from its "exclusivity and timeliness."

She rejected Theflyonthewall.com's objection to any contention that it "free-rides" on banks' research efforts, saying the company makes no effort to produce the recommendations or contribute to the underlying analyses.

The judge also said Theflyonthewall.com's "illegal conduct" cannot be excused because rivals might also engage in unlawful behavior.

"While it may be true that Fly is a news aggregator and is in direct competition with other financial news aggregators, both large and small, each of these news aggregators is in direct competition with the firms when they report the firms' recommendations in a timely and systematic manner such that the firms are deprived of the opportunity to communicate them first-hand to their clients," she wrote.

According to the opinion, Theflyonthewall.com said the lawsuit forced a big change in how it gathers recommendations, such that it now engages often in "confirming" the substance of research with two or three sources before publishing -- still, typically, before the market opens.

Noting also that some firms have cut their research staffs, Cote also advanced a public policy argument that might favor the encouragement of banks' research efforts through limiting TheFlyonthewall.com's distribution.

"A balance must be struck between establishing rewards to stimulate socially useful efforts on the one hand, and permitting maximum access to the fruits of those efforts to facilitate still further innovation and progress," she wrote.

While noting that the 2003 global research analyst settlement, the availability of discount electronic trading platforms, and the financial crisis might have hurt the banks," these other events aside, the misappropriation of their recommendations by Fly and others has also had a profound effect on their business model," Cote said.

The case is Barclays Capital et al v Theflyonthewall.com, U.S. District Court, Southern District of New York, No. 06-04908.

(Reporting by Jonathan Stempel and Grant McCool; Editing by Leslie Gevirtz and Richard Chang)

WhatsAppFacebookTwitterLinkedinBeloudBluesky