“The Securities and Exchange Commission, the chief regulator of financial markets, announced yesterday that it had begun a formal investigation into Wall Street stock analysts and their potential conflicts of interest,” writes Patrick McGeehan in today’s New York Times.

“One day after meeting with Eliot L. Spitzer, the New York attorney general, Harvey L. Pitt, the S.E.C. chairman, said the commission would join forces with Mr. Spitzer and other state and federal securities regulators in a ‘formal inquiry.’ “

“The commission does not usually announce its investigations but Mr. Spitzer has received a lot of attention in the last three weeks for his investigation of whether analysts at Merrill Lynch and Citigroup recommended stocks to help their employers’ obtain or keep investment banking business.”

“Mr. Pitt’s announcement signals that other firms on Wall Street will not be left out and that the regulators will seek to propose solutions that will affect all securities firms. Shares of several major securities firms dropped sharply after the announcement.”

” ‘This is a significant step,’ said Lewis D. Lowenfels, an authority on securities law at Tolins & Lowenfels in New York. ‘A federal agency is exercising its jurisdiction to take control of an investigation that has national implications from a policy standpoint.’ “

“Since last year, regulators at the commission and the National Association of Securities Dealers have been looking into analysts’ practices. But turning the effort into a formal investigation gives the commission the power to compel testimony and to issue subpoenas to investment banks for any relevant documents.”

“Mr. Spitzer’s investigation, begun last summer, took on a new life after his office gathered e-mail messages written by Merrill analysts that appeared to show that their private opinions of some stocks differed markedly from their public statements. In those messages analysts, including Henry Blodget, a former star analyst at Merrill, called companies they were recommending junk and worse.”