“In the latest crackdown on Wall Street analysts, Merrill Lynch & Co. fired a top-rated retailing-stock analyst, Peter Caruso, for allegedly giving some clients warning of a possible earnings-estimate reduction,” writes Randall Smith in today’s Wall Street Journal.

“The action by Merrill, the nation’s largest securities firm, appears to reflect its determination to show it wants to play by the rules in the wake of paying a $100 million fine and agreeing to overhaul its research practices after an investigation by New York Attorney General Eliot Spitzer. Mr. Spitzer alleged Merrill’s Internet-stock analysts recommended some stocks they privately disparaged in hopes of winning investment-banking business.”

“Merrill said Mr. Caruso, 44 years old, ‘violated the firm’s policy regarding disclosure of an earnings-estimate change’ in signaling a possible future adverse report on Home Depot Inc. The firm said, ‘Our clients, our management and the investing public expect the highest possible standards of professionalism in every aspect of Merrill Lynch’s business. Anything less will not be tolerated.’ “

“Mr. Caruso was the No. 1 analyst in the retailing/hard-goods category for the past three years, according to an annual poll by Institutional Investor magazine.”

“The office of Mr. Caruso’s lawyer, Julian Friedman of Stillman & Friedman in New York, said Mr. Caruso wasn’t available to comment. Mr. Friedman wasn’t immediately available.”

“Mr. Caruso downgraded Home Depot stock July 12. But the stock declined in heavier-than-usual volume on the afternoon of July 11, prompting questions at the time whether investors had gotten advance word of the downgrade. One person familiar with Merrill’s action said “he indicated to some institutional investors after a lunch that day [July 11] that he might be” reducing his earnings estimates for the Atlanta home-improvement retailer. On July 11, the stock fell 5.6%, with half the day’s block trades of 10,000 shares or more occurring after 2 p.m.”