“For the past year, federal lawmakers and regulators have made little headway in forcing big securities firms to take strong, decisive steps to address conflicts of interest involving Wall Street research,” writes Charles Gasparino in today’s Wall Street Journal.

“But that could change thanks to the current, wide-ranging investigation by New York State Attorney General Eliot Spitzer. On Monday, Mr. Spitzer took special aim at Merrill Lynch, and its former Internet-stock analyst Henry Blodget by issuing a report on a 10-month investigation into how research is conducted at the nation’s largest brokerage firm.”

“The centerpiece of Mr. Spitzer’s findings: a series of e-mails showing that analysts often harbored different opinions privately from those they expressed in their public research reports. Mr. Spitzer says the e-mails provided evidence that Merrill knowingly issued positive research oncompanies, despite harboring reservations about the stocks, to win lucrative corporate-finance work.”

“Mr. Spitzer vows he isn’t stopping there. In an interview Tuesday, he said he wants major structural changes in the way Wall Street firms provide stock research. One proposal on the table, he said, is the possibility of forcing firms to separate their research units from their investment-banking departments. He now is working with the U.S. Securities and Exchange Commission on the matter; the regulatory unit of the National Association of Securities Dealers also has joined the fray with its own parallel probe, say those with knowledge of the matter.”

” ‘At the end of the day, I’m hoping to resolve these issues through some global resolution that the industry will accept,’ Mr. Spitzer said. ‘That will require participation from Congress, the SEC, and the industry predicated on everyone accepting that the problem is a real one.’ “

“While the findings were a blow to Merrill and to Mr. Blodget, legal experts and securities-industry officials say they could have even more implications for Wall Street in general. In the past, regulators and lawmakers have called on Wall Street to voluntarily make changes in the waythey handle research. The NASD and New York Stock Exchange recently have proposed new rules for securities firms mandating that analysts disclose their firm’s banking relationships, and set limits on the degree to which investment bankers can control analysts’ reports and recommendations. The rules also place new limits on analysts’ stock ownership and trading.”