Spitzer Goes After More Brokers

Updated from 1:13 p.m. EDT

In his quest to clean up Wall Street, New York Attorney General Eliot Spitzer is getting out a bigger broom.

Just two days after launching an opening salvo against Merrill Lynch (MER Quote - Cramer on MER - Stock Picks), Spitzer said Wednesday that he is broadening his inquiry into the relationship between analysts and investment bankers at other big Wall Street firms.

The latest wave of big brokerage firms to earn scrutiny comprises Goldman Sachs (GS Quote - Cramer on GS - Stock Picks), Credit Suisse First Boston, Morgan Stanley (MWD Quote - Cramer on MWD - Stock Picks), Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks), Citigroup's (C Quote - Cramer on C - Stock Picks) Salomon Smith Barney unit, UBS PaineWebber, Lazard Freres and Bear Stearns (BSC Quote - Cramer on BSC - Stock Picks), Dow Jones reported, citing people close to the inquiry.

Morgan Stanley, Salomon, Bear Stearns, Lazard Freres and CSFB all declined to comment. UBS Painewebber, Goldman and Lehman also declined to comment but added that they have not been issued subpoenas so far. The Wall Street Journal said that some of these firms have or will soon receive subpoenas from the NY attorney's office.

Spitzer raised the stakes in the increasing scrutiny of Wall Street Monday, alleging that former Merrill Internet analyst Henry Blodget pushed companies in research that Merrill had investment-banking relationships with, even though internal emails suggest that Blodget himself didn't entirely love the stocks. Merrill said the attorney general's claims were baseless and said the firm places the highest priority on maintaining its integrity.

As soon as Spitzer opened the inquiry into Merrill, there was little doubt that there was more to come. Although there was good political fodder in going after Merrill first, others on the Street appear potentially even more vulnerable. Merrill is the biggest broker with the largest retail client base, and Blodget has become the poster boy for excess in the Internet era -- but Merrill didn't benefit from the Internet bubble anything like some firms did.

During the bubble years, Morgan Stanley did more equity underwriting than Merrill, particularly in the tech arena. And one of the big reasons Internet companies flocked to Morgan for underwriting was that they would be covered by, and get to work closely with, star analyst Mary Meeker. Over at Citigroup's (C Quote - Cramer on C - Stock Picks) Salomon Brothers unit, Jack Grubman has long walked the line between analyst and investment banker. And so on.