“A three-member arbitration panel dismissed a $30 million claim against Merrill Lynch & Co. by one of InfoSpace Inc.’s first employees, who alleged that he and his wife held onto the stock partly because of the big securities firm’s bullish research on the Internet company,” writs Susanne Craig in today’s Wall Street Journal.

“The New York Stock Exchange panel gave no reasons for the decision, as is typical in securities arbitration. The award has wider significance because, like many arbitration cases that have been filed recently, Sanjay Kohli and his wife, Rashmi, argued that Merrill’s stock research factored into their decision to hold a large number of shares.”

“Mr. Kohli had argued that Merrill failed to devise a strategy to hedge his 500,000 shares of InfoSpace, which in late 2000 were valued at about $36 million. At 4 p.m. Wednesday on the Nasdaq Stock Market, the stock was trading at $14.05, putting the value of the investment at $702,500.”

“Former Merrill analyst Henry Blodget, who this year agreed to pay $4 million to settle regulatory charges that he issued misleading research, wrote e-mails in 2000 in which he expressed ‘enormous skepticism’ about InfoSpace and called it a ‘powder keg,’ despite recommending it to investors.”

” ‘Had Merrill Lynch’s ratings and research on InfoSpace reflected the true opinions of its analysts, the Kohlis would not have continued holding InfoSpace while it declined so steeply in value,’ says the Kohli’s statement of claim.”

” ‘Arbitration is arbitrary, and often a roll of the dice,’ says Jacob Zamansky, the Kohlis’ lawyer. ‘I was made a substantial settlement offer by Merrill but my client declined it. I work at the behest of my client and I disagreed with him. He wanted all of this money back and the panel disagreed with our position. That is why it is important to reach settlements ‘ “

“Mr. Zamansky is no stranger to Merrill. In 2001, he won a $400,000 settlement from the firm for one of his clients, who also claimed he was misled by a bullish stock call by Mr. Blodget. More recently, he won a $310,000 award against Merrill, claiming his clients lost $172,000 investing in various Merrill stocks, including its in-house internet strategies fund.”

“It is too early to declare an emerging trend in how arbitration panels are dealing with cases involving allegedly tainted Wall Street research. So far, like the Kohlis’ case, the handful of awards that have been handed down involve other issues, such as churning of the account or unsuitable investments. Arbitration hearings, where most customer beefs involving Wall Street are heard, have no precedential value.”

http://online.wsj.com/article/0,,SB106081122738232600,00.html