Yet another fund shareholder has hauled Merrill Lynch into court to try to reclaim losses in the broker's Internet technology fund. This time the class action suit seeks $1 billion to cover alleged losses created by conflicts of interest at the broker. Merrill is fighting the suit and says the claims are without merit.

The class-action was filed yesterday in Broward County, Florida; by Darren Blum (he represents named-plaintiff Thomas Strano). Blum claims Strano lost 90 percent of his $120,000 investment in the Merrill Twenty Focus fund due to conflicts created by Merrill's analysts. The suit also claims that Merrill took in more than $1 billion of assets into the fund.

Merrill launched the Twenty Focus fund in 1999 after snatching fund manager James McCall from Pilgrim Baxter. The move was a response to flagging sales in 1999.

At the heart of the claim are alleged improprieties conducted by analyst Henry Blodgett for which Merrill entered into a $100 million settlement with New York Attorney General Eliot Spitzer.

The suit claims that the fund was used by Merrill Internet analyst as a dumping ground for stocks of investment banking clients despite the knowledge of Merrill employees that the stocks were mispriced. Specific stocks named in the suit include Exodus Communications and Inktomi.

Merrill's response is that the fund managers operated independently from the analysts and relied on a wide variety of information to make the investments. It also points out that nothing in Spitzer's investigation supports the allegations.

The suit also alleges that Merrill mislead investors with the fund's prospectus and sales materials. In those materials, Blum says the founded was touted as being a suitable investment for retirement and children's education savings. Because it held only twenty stocks in a volatile sector, Blum contends that the fund was in actuality suitable only as a speculative investment for wealthy account holders.

Merrill responds that the prospectus adequately disclosed the risks of investing in the fund.  

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