Updated from Aug. 19

With Salomon's star telecom analyst Jack Grubman now gone and Merrill Lynch's ( MER) infamous Henry Blodget out, one might be forgiven for wondering if it's time for Morgan Stanley's ( MWD) prominent Internet guru Mary Meeker to step aside.

Though she has maintained a low profile over the past 18 months, Meeker was one of the most visible cheerleaders of the tech bubble, hyping a plethora of questionable Internet stocks even as they fell to pennies a share.

On stocks such as Amazon ( AMZN) and Yahoo! ( YHOO), Meeker's optimism never wavered, and she has maintained her "overweight" ratings throughout the punishing declines of these stocks. Amazon is down over 85% from its high, while Yahoo! has fallen more than 90% from its best level.

Although she did cut her ratings on FreeMarket ( FMKT) and VeriSign ( VRSN) this year to "equal weight," the downgrades came after the stocks had already lost 90% of their former value. Of the 13 stocks now under coverage, she has an "underweight" rating on just one: Ask Jeeves ( ASKJ).

Thanks largely to her continued faith in Amazon and Expedia ( EXPE), an equally weighted portfolio of Meeker's Internet picks is only down about 22% year to date, a narrower loss than both the S&P 500 and Nasdaq Composite, which have fallen about 27% and 42%, respectively.

Morgan Stanley declined to comment for this story, and Meeker was unavailable.

Quite Contrary

There's no crime in being a bad stock-picker, of course, and it should be noted straight away that eight lawsuits filed against Morgan Stanley last year were thrown out on grounds plaintiffs hadn't proven that Meeker's advice was tainted.

But while legal standards couldn't be met, critics still contend that Meeker's stock research was biased and that she rated stocks highly not because of strong fundamentals but out of a desire to win banking business from those companies.

"Mary Meeker has done the same type of thoroughly conflicted research as has Grubman," said Jacob Zamanski, a Manhattan securities lawyer who successfully filed arbitration claims against Merrill Lynch last year. "It's necessary to get rid of the old guard who misled investors."

In a spring 2001 Fortune article, Meeker was portrayed as one of the most aggressive dealmakers on Wall Street. In an interview at the time, she said she almost never lost a deal she really wanted and went to great lengths to ensure she would win investment banking business for the firm. The article also cites a Denver fund manager who claims that Meeker said to him: "I don't think I would mess around with AOL ( AOL) here" while maintaining a strong buy rating on the stock.

Of course, that was before the New York State attorney general launched an investigation into the conflicts of interest at major brokerages, and before Merrill was forced to cough up $100 million for privately disparaging companies that it was publicly recommending.

Ballast

Fraser Seitel, author of The Practice of Public Relations and managing partner of public relations counseling firm Emerald Partners, said he believes Meeker is "damaged goods" just as Blodget and Grubman were. "It's just a matter of time before all her wrongheaded high-tech recommendations come home to roost," he said.

Meeker is, at best, a PR-liability to Morgan Stanley, and possibly a monetary one. Although it's unclear how much the analyst made last year (Morgan doesn't disclose analyst compensation), it's fair to assume she's being paid handsomely. Even if her salary had been cut in half since 1999, she'd still be raking in a cool $7.5 million. And yet Meeker's opinions no longer wield the kind of influence they once did.

"I think she's finished as an analyst," Zamanski said. "I doubt anyone would take her views seriously."

Other observers note that all the criticism heaped upon Meeker over the past 18 months -- not to mention the lawsuits -- must have been a major distraction and made it difficult for the analyst to do her job effectively. Lawyer Tracy Pride Stoneman represents individuals who have claims against their stockbrokers, and she says she has seen a surge of claims against Morgan Stanley.

Still, firing Meeker could be seen as tantamount to admitting guilt, something Morgan is unlikely to risk. Sources at the firm say she isn't leaving anytime soon, because while she did stay bullish for too long, they believe she did the appropriate amount of due diligence on the companies she followed.

Even if her actions were perfectly legal, investors are still questioning whether or not they were ethical. Meeker arranged the initial public offering of Drugstore.com ( DSCM), for example, and then advised investors to purchase shares because of its popularity as a Web shopping destination. Meeker also helped bring public Homestore ( HOMS) and then recommended buying the stock because of its "leading mind share among consumers." At her peak she covered about 30 stocks; she no longer follows roughly half of them, in some cases giving them up without any fanfare when they failed to meet her optimistic prognostications. That has also struck many as underhanded.

"She became rich by making average people like me poor," said one investor. "I'd personally feel better about the markets if she left Morgan Stanley, because I'd feel like one of these brokers is finally taking at least some responsibility for what went wrong."
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