Opinion ID: 789042
Heading Depth: 2
Heading Rank: 2

Heading: The 24/7 Media and Interliant Allegations

Text: 16 24/7 Media provides marketing solutions to the digital advertising industry. Merrill Lynch acted as lead underwriter for two public offerings made by 24/7 Media in August 1998 and April 1999. Plaintiffs challenge as materially false and misleading each of the approximately 45 reports issued by Merrill's Internet Group from May 12, 1999 through November 9, 2000. The stock-appreciation potential of 24/7 Media was rated at accumulate or buy throughout that period, until it was downgraded to neutral on November 9, 2000. The stock price gyrated from $45.125 on May 12, 1999, to a high of $64.625, and to a low of $2.9375 at the close of the putative class period. 17 According to plaintiffs, the 24/7 Media research reports — particularly [the] `ACCUMULATE' and `BUY' recommendations — were false and misleading, and failed to disclose that Merrill Lynch and Blodget had a policy and practice throughout the Class Period of never issuing ... [a] rating or recommendation ... other than `BUY' or `ACCUMULATE' because to do so would jeopardize Merrill Lynch's ... ability to obtain underwriting or investment advisory engagements. It is further alleged that the reports were issued primarily as a means to artificially inflate the price of 24/7 Media stock, and that the appreciation ratings were nothing more than undisclosed `momentum' plays — i.e. the stock should be bought because its price will rise, even though there are no rational economic reasons why the stock should trade at its current price ... [or] why the stock price should continue to rise. 18 Similar allegations are made with respect to the Internet Group's coverage of Interliant, a provider of enhanced Internet services that enable[d its] customers to deploy and manage their Web sites and network-based applications. Merrill Lynch acted as co-lead underwriter of Interliant's initial public offering in July 1999. Plaintiffs challenge as false and misleading each of the approximately 35 reports issued by the Internet Group between August 4, 1999 (when coverage initiated with intermediate and long-term appreciation ratings of Accumulate and Buy) and February 20, 2001 (after which the stock was downgraded from Buy/Buy to Accumulate/Accumulate). Interliant was trading at $16.375 when Merrill initiated coverage, rose to a high of $55.50, and had plummeted to $4.00 as of February 21, 2001, the day after the putative class period closed. Throughout this period, Merrill's investment-banking arm assisted Interliant in its acquisition of 27 companies, and underwrote a $150 million convertible-bond offering in February 2000. 19 Plaintiffs challenge the veracity and completeness of the Interliant research reports in allegations virtually identical to those made regarding the 24/7 Media reports: the intermediate and long-term appreciation ratings were false and misleading; they were intended to artificially inflate Interliant's share price and to encourage Interliant and other internet-sector companies to use Merrill Lynch for investment-banking services; and the ratings had no rational economic basis. 20 Plaintiffs filed amended, consolidated class-action complaints in February 2003 and Merrill promptly moved to dismiss for failure to state a claim. Judge Pollack granted defendants' motion, citing numerous pleading deficiencies. This appeal followed.