eComBiz

Judge Denise Cote said Theflyonthewall.com engaged in “systematic misappropriation,”

18 Mar 2010 @ 4:23 PM

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Ruling in favor of Bank of America Corp’s Merrill Lynch unit, Barclays Plc and Morgan Stanley, U.S. District Judge Denise Cote said Theflyonthewall.com engaged in “systematic misappropriation,” essentially getting a “free ride” from its quick publication of upgrades and downgrades that can move stocks higher and lower.

Cote issued a permanent injunction requiring the Summit, New Jersey-based company to wait until 10 a.m. to report research that was issued before the market opens, and at least two hours for research issued thereafter. The bulk of research is typically issued before the open.

While the banks had sought longer delays, Cote said: “This time frame preserves incentives for the firms to create and disseminate research reports to their investor clients, while still recognizing the inevitable, fast-moving, and widespread informal communication of recommendation on Wall Street.”

Cote added she could not excuse Theflyonthewall.com’s activities simply because recommendations are also reported by many rivals, or are otherwise leaked or rumored.

“The legally salient fact … is that Fly is exploiting its self-described ‘hefty relationships with people in the know,’” she wrote.

The judge said Theflyonthewall.com may apply in one year to lift the injunction if the banks do not take reasonable steps to halt the unauthorized distribution of research.

According to the opinion, Theflyonthewall.com said the lawsuit has forced it to ritualistically engage in “confirming” the substance of research with two or three sources before publishing – still, typically, before the market opens.

The company has about 30 employees. It charges $50 a month, or $480 annually, for its services, its website shows.