The inherent conflicts of big investment banks like

Merrill Lynch

(MER)

pouring millions into

Long Term Capital

, which also happened to be a big investment of its top execs, is well known. What isn't as well known is that investment bankers routinely get their firms to underwrite companies in which they have had personal stakes.

Take

Boston Chicken

(BOST)

, for example. According to a 1994 column by the great

Dan Dorfman

, from his days at

USA Today

, Merrill investment banker

Charles Lewis

owned more than 473,000 pre-IPO shares Boston Chicken shares, with an interest for nearly 58,000 more. Surprise, surprise: Merrill became Boston Chicken's lead investment banker on the IPO and other deals.

Asked about it at the time by Dorfman, Lewis said: "My holdings didn't influence my thinking in Merrill doing the deals. Merrill also has checks and balances, and any investment banker would have jumped at the chance to replace Merrill in the deal."

In a line that is sure to go down as a classic, considering the circumstances, Lewis then added: "If more investment bankers put their money where their mouth is, fewer bad deals would be done."

Boston Chicken, once a screamer of a stock, filed for protection under Chapter 11 of the federal bankruptcy code Monday.

Asked today whether the Boston Chicken deal, in retrospect, was a conflict, a spokesman said, "No," because doing deals for companies in which bankers have previous, personal investments is "not uncommon on Wall Street."

Perhaps, but does that make it right?

Lulled by Lucent?:

Two weeks ago,

Lucent

(LU)

held an upbeat analyst's meeting. A few days later,

Philips

(PHG) - Get Report

held a downbeat meeting. The connection: Lucent owns 40% of a joint venture in

PCC

, a private company 60% owned by Philips. At its meeting, Philips said it expected losses at the joint venture to get significantly worse. Philips analysts mentioned it prominently in their post-meeting reports; Lucent analysts haven't said a word.

Did they simply not notice? A Lucent spokesman said the loss was factored into the guidance it has given analysts and added that the company has said it isn't "uncomfortable" with consensus estimates calling for 39 cents per share for the third quarter.

Investors had better hope the PCC loss has really been factored in, especially given Lucent's recent history of just squeaking past earnings estimates. According to one of my number-crunching sources, whose track record is impeccable, the PCC loss estimated by Philips could pull Lucent's numbers down by 6 cents and 8 cents per share in the third and fourth quarters, respectively.

Put another way, the PCC problem looks like it will be tougher for Lucent to meet estimates, let alone beat them.

More fun and games with Galoob:

Tender offer documents can contain a wealth of previously undisclosed information, and the tender offer filed by

Galoob Toys

(GAL) - Get Report

in conjunction with its proposed takeover by

Hasbro

(HAS) - Get Report

, is no different. In this case, investors might wonder whether the company had misled them last October after it had received the rights to make small items tied to the next three

Star Wars

movies. At the time, in a press release touting the deal, Galoob CEO Mark Goldman said that "it is extraordinary for a company of Galoob's size to be given an opportunity so large. These arrangements fundamentally change Galoob, creating a stability and an assured access to growth previously unavailable to us."

Yet according to the tender offer, the very next month, Galoob hired

Allen & Co.

"to discuss the potential engagement of Allen to assist the company in exploring strategic alternatives to increase stockholder value, including opportunities for the sale of or other business combination involving the company."

That's right, one minute the company is saying that the Star Wars deal will "create a stability and an assured access to growth," and the next it's hiring an investment advisor to help sell the company.

And coincidence of coincidences, the same month Galoob was hiring Allen, CEO Goldman agreed to a sweetened multimillion-dollar severance package that includes a special lump-sum payment of $948,400 that presumably wipes out a $950,000, 10-year, interest-free loan the company gave him to buy a home.

Nice work if you can get it.

Hubris humbled:

An item here

yesterday noted this column's recent mention that the food chain in the telecom industry was predicting trouble at the top. It ended by referring to

Alcatel

(ALA)

, which had zippo in the way of sales four years ago, has been going the rollup route by purchasing mom-and-pop seed companies. The strategy has sprouted something that looks like a real company.

McIntosh: "Seen its stock lately?" The stock is at 10.

Touche.

Herb Greenberg writes daily for TheStreet.com

. In keeping with the editorial policy of

TSC

, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for

Fortune

and provides daily commentary for

CNBC

.