Merrill Lynch & Co. settled a high-profile arbitration case brought by a former client who claimed he was misled by a bullish stock call by technology-stock analyst Henry Blodget, potentially paving the way for similar actions by other aggrieved investors, The Wall Street Journal is reporting this morning.

The nation’s largest brokerage firm agreed to pay $400,000 to Debases Kanjilal, a 46-year-old pediatrician, capping a case he filed in March with the New York Stock Exchange, according to people with knowledge of the matter.

In the civil case, Mr. Kanjilal contended that Mr. Blodget maintained a buy recommendation on InfoSpace Inc., an Internet stock, to support a lucrative financial deal for Merrill. Mr. Kanjilal said he had a loss of about $500,000, following Mr. Blodget’s advice.

The case could have broader ramifications for the brokerage business, which has come under pressure in recent months for conflicts involving often-bullish research it provides to investors.

“It’s like putting out warm milk for a stray cat that meows,” says John Coffee, a law professor at Columbia University in New York. “You get 30 more cats the next night. This will create an incentive for others to seek a legal remedy.

Arbitration cases have no precedential value, of course, and investors would have had to have suffered big losses to make it worthwhile for them to pursue similar claims against Wall Street firms or analysts.

Still, by settling the matter, Merrill could open the door for more legal action by investors who believe they were burned by snapping up shares of once-highflying technology stocks hyped by, among other things, aggressive “buy” recommendations by analysts.

In most cases, Wall Street firms only made minimal disclosures about any potential conflicts, including lucrative investment-banking relationships with firms whose stocks they were touting.