Ex-Merrill Analyst Caruso Charged With Playing Favorites

He's alleged to have given advance warning of a ratings change to institutional clients.
Publish date:

Securities regulators have filed disciplinary charges against a former

Merrill Lynch


retail analyst who is accused of tipping off institutional investors about an impending downgrade of

Home Depot

(HD) - Get Report

in July 2002.


New York Stock Exchange

filed the charges against Peter Caruso on Oct. 29, nearly 15 months after the Big Board began its investigation into the matter. The investigation was

first reported by


earlier this year.

Merrill Lynch fired Caruso in August 2002, a few weeks after the NYSE began its investigation of the once-influential analyst. Caruso has not worked in the brokerage business since his firing.

The former analyst's attorney, Jeffrey Plotkin, could not be reachedfor comment.

The incident that led to Caruso's downfall occurred on July 11, 2002,when he was a guest speaker at a retail industry conference attended byinstitutional investors. During the event, Caruso mentioned to someinvestors that he was considering downgrading shares of the nationalhardware chain.

The next day Caruso downgraded Home Depot's stock, in a research note that lowered his rating on the shares to neutral from a strong buy. Thestock fell 7.4%.

But on July 11, the day Caruso allegedly tipped off some investorsabout the rating change, the stock fell 5%.

In the charges, which were recorded on the former analyst's brokerregistration statement, the NYSE alleges that Caruso made the disclosurewithout seeking approval from his supervisors at Merrill. The exchange'senforcement division contends Caruso "failed to adhere to the principles ofgood business practices'' by tipping off some investors to the impendingrating change.

The action by the NYSE comes at a time when many critics havequestioned the aggressiveness of the Big Board's regulatory division.