The New York State Attorney General has obtained a court order requiring immediate reforms by Merrill Lynch. The firm must make disclosures to investors about its relationship with investment banking clients and provide more context for its stock ratings. The court order is a preliminary step “designed to protect investors,” says the AG, while the investigation into Merrill continues.

So far, the NY attorney general’s office investigation has concluded that Merrill’s investment advice was tainted and biased by the desire to aid its investment banking business. The firm’s stock ratings were biased and distorted in an attempt to secure and maintain lucrative contracts for investment banking services, says the AG. “As a result, the firm often disseminated misleading information that helped its corporate clients but harmed individual investors. This was a shocking betrayal of trust by one of Wall Street’s most trusted names.”

Conflicts of interest have been allegedly revealed in internal e-mail communications obtained during the investigation. These communications reputedly show analysts privately disparaging companies while publicly recommending their stocks.

Merrill Lynch has responded to the allegations in a statement, calling the New York attorney general “just plain wrong. There is no basis for the allegations made today by the New York Attorney General,” says Merrill. “His conclusions are just plain wrong. We are outraged that we were not given the opportunity to contest these allegations in court. We are confident that a fair review of the facts will show that Merrill Lynch has conducted its research with independence and integrity. We have been a leader in practices to assure the independence of our highly regarded research group.”

Merrill says that the allegations reveal a fundamental lack of understanding of how securities research works within the overall capital raising process. It says that the emails in question must be taken in context. ‘The emails in question show that there was normal give and take as well as vigorous debate among analysts as they assessed different companies.”

“Our reputation for integrity, established over many years, is very important to us. We protect it aggressively. This includes defending ourselves when we are charged unfairly with wrongdoing. We believe these allegations are baseless, and we will defend ourselves vigorously.”