French Court Finds Against Morgan Stanley Over Investment Research

by Ulrika Lomas, for LawAndTax-News.com, Brussels

15 January 2004

Following a court ruling in France, in which Morgan Stanley analysts were found guilty of defaming the LVMH (Moët Hennessy-Louis Vuitton) group, observers have warned that the independence of stock analysts has been severely threatened.

In addition to facing criticism for artificially inflating the stock prices of listed companies by issuing misleading research, analysts now potentially run the risk of legal action if they are critical of an organisation.

Speaking to Reuters, one unnamed investment analyst announced that:

"Analysts are hoping that this is is something that will primarily be a French issue, but if it becomes a true pan-European issue, we do have a problem." He continued:

"If other companies begin to take banks to court over negative reports, then it will give the industry a major black eye."

LVMH had argued that research issued by Morgan Stanley analysts was biased in favour of rival firm, Gucci.

Experts have suggested that the French verdict is likely to have a chilling effect on the investment research sector both domestically in France, and internationally with regard to reporting on French companies.

However, it is the investment community which will arguably be the biggest loser, as another investment analyst speaking to Reuters observed.

"French investors will still have to invest in French stocks, but the chances of someone finding out if things are wrong with French companies has been reduced," he explained, concluding: "If that's what French companies want, that's what they'll get."

Recommended