Here's a riddle: What's the difference between a Wall Street analyst and a real estate agent? Not much -- or at least there shouldn't be under the law, according to two legal scholars. In a soon-to-be published legal journal article, two corporate law professors argue that the best way to regulate the behavior of Wall Street analysts is to treat them as "quasi agents." In other words, they say, analysts should owe some fiduciary obligation to investors, in much the same way that an agent who sells real estate has an obligation to deal fairly with a customer.
That's why many legal experts say all those disgruntled investors racing to file lawsuits and arbitration claims against analysts face an uphill battle. While New York State Attorney General Eliot Spitzer's investigation into analyst conflicts of interest at Merrill Lynch ( MER) may have shone a much-needed spotlight on the issue, it didn't make it any easier for investors to prevail in a lawsuit against an analyst. Back in May, Merrill and Spitzer agreed to a settlement that required the nation's biggest brokerage to pay a $100 million fine and take steps to put more distance between the work of its analysts and that of investment bankers. For instance, investment bankers at Merrill may no longer evaluate the performance of the firm's analysts, nor may they have a say in how an analyst is compensated. The brokerage also must establish a committee to monitor the relationship between investment bankers and analysts and disclose any potential conflicts to investors. Scores of politicians have praised the Merrill settlement as establishing a blueprint for other Wall Street firms. But the professors are critical of the Merrill deal, saying it's fraught with "loopholes" and doesn't go far enough in eliminating potential conflicts or protecting investors. They say the settlement still allows room for analysts to participate in meetings with investment banking clients and even permits analysts to help solicit new business in some circumstances.