Full Disclosure: Update

The lawsuits claim analyst Mary Meeker, nicknamed “Queen of the Internet” for her bullish reports on the tech industry, skewed her advice on eBay Inc. and Amazon.com Inc. to keep the companies on her firm’s investment banking roster.

Lawyers for the plaintiffs in the class-action suits, filed yesterday in federal court, say investors lost millions because of Meeker’s reports.

A spokesperson for Morgan Stanley, also named in the suit, said both lawsuits should be dismissed.

The suits are only the latest step in a growing skepticism over analysts’ recommendations.

Laura Unger, the acting chairman of the Securities and Exchange Commission, told a Congressional committee Tuesday that over a quarter of the analysts checked in a recent review had invested in companies they evaluated and reported on before the stock was offered to the public.

While checking for potential conflicts at nine unnamed securities firms, Unger said her agency found that three of the 57 analysts examined had sold shares of the same stocks they were advising clients to buy, earning profits from $100,000 to $3.5 million.

Unger told the House Financial Services subcommittee on capital markets that nearly all the firms the SEC examined were unable to say what their employees’ investment holdings were.

“Consequently,” Unger said, “firms did not always know whether their research analysts owned stock in companies they underwrote and upon which their analysts then issued research reports.”

Analyst conflicts

Aside from their individual holdings, Unger said analysts routinely painted rosier forecasts for companies in which their employers had large investments.

“The [SEC] staff also found that if the company went public and the analyst’s firm underwrote the IPO, the analyst always issued positive research on the company,” she said.

The commission found analysts’ salaries and bonus payments are often tied to the success of their firm’s investment banking arm. Former Paine Webber research director Ronald Glantz told the committee that link led to increased analyst conflicts.

Three firms recently announced they would prohibit analysts from buying stocks in the companies they cover.

Credit Suisse First Boston said July 25 its analysts would have to start selling off shares of such stocks starting Sept. 30.

Robertson Stephens and Merrill Lynch & Co. issued similar policy changes, but said employees could hold onto shares they already owned.

Investor confusion

Then-SEC chairman Arthur Levitt told the NewsHour last year that such conflicts can confuse investors.

“There are lots of these subtle and some not so subtle conflicts, and I think it’s terribly important that the viewer understand what the hidden agenda may be,” Levitt said.

“…[T]he perception of an investor who buys a stock from an analyst that did not reveal a conflict, who then experiences that stock going down, and then learns that there was a conflict has got to be negative and has got to corrupt the stage as far as that’s concerned for all future analysts having undisclosed relationships,” he said.

Unger said the cases could be the subject of a future enforcement investigation, although any such move would presumably be helmed by her successor Harvey Pitt, who the Senate confirmed as the SEC’s new chairman today.