News Release

NASD Charges Former Merrill Lynch Managing Director with Issuing Misleading Research, Selectively Disclosing Material Non-Public Information and Improper Gift Giving to Tyco's CEO

Washington, DC — NASD announced today that it charged Phua Young, formerly a managing director and senior research analyst at Merrill Lynch, with a series of research violations including publishing research reports about Tyco International Ltd. that contained misleading statements and exaggerated claims. The misconduct, which included other related securities violations, took place over a three-year period until April 2002, when Merrill discharged him for violating firm policy and regulatory standards.

The charges filed today represent another chapter in NASD's actions involving research analyst misconduct. In the last year, NASD has brought over 20 actions involving violations against firms and individuals.

Today's complaint focuses primarily on Young's coverage of Tyco, Young's favored company and the most important issuer in Young's research area. From February until April 2002, Young published research reports about Tyco that contained misleading statements and exaggerated claims that were contrary to the beliefs, views and opinions he expressed privately. Young also disseminated material non-public information about Tyco and gave advance notice of proposed ratings to selected institutional clients. The complaint further charges that Young routinely gave Tyco advance copies of his research reports that included proposed ratings and analyses. NASD also charged Young with improperly giving a gift to Dennis Kozlowski, then Tyco's chief executive officer.

"The conduct of this analyst, as evidenced by his own e-mails, gifts to the CEO of Tyco, and favors he received from the company amounted to a betrayal of objectivity and honesty in research," said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "NASD will continue to hold analysts accountable whenever the interests of issuers and investment bankers cause them to lose their objectivity and produce misleading and skewed research."

While at Merrill Lynch, Young maintained an extraordinary close relationship to Tyco, as evidenced by his own e-mails that manifest his lack of independence from the company. For instance, Young remarked to a senior employee in Tyco's Investor Relations Department, "I am indirectly paid by Tyco." In another e-mail following Young's blast voice mail to institutional clients, Young asked Tyco Investor Relations, "[d]id I not sound pumped up enough?" Tyco responded "you always sound pumped."

Young's close relationship with Tyco is also evident from favors he received from Tyco. For example, Young flew multiple times on one of Tyco's corporate jets for business trips, often accompanied by Kozlowski. On another occasion, Young requested, and Tyco retained a private investigator to prepare a background report on one of Young's personal friends. Young's close relationship with Tyco compromised his independence as a research analyst.

Misleading Research Reports

The complaint stated that in January 2002 Tyco announced it planned to split into four companies and retire $11 billion in debt. As part of this plan, Tyco announced it would spin off CIT, a large commercial lender. In February, March and April of 2002, Young published a series of research reports on Tyco in which he assumed a sale of CIT for $8 billion, relied upon that sale price to reach an asset valuation of the company between $60 to $70 per share, and stated that the stock was undervalued. Privately, however, Young did not believe that the CIT sale would produce $8 billion or anywhere near that number, as noted in his emails. Young also privately expressed his negative view of Tyco's debt level, believed the company was facing a liquidity crisis and that the stock was overvalued. For example, when the stock was trading between $33 and $35 per share, in an e-mail dated March 7, 2002, to a Tyco investor relations employee, Young stated:

"I am waiting for $10 [stock price] after tyco [sic] announces the inability to sell CIT for anything near $8B. Liquidity crunch, more distractions, the debt bomb starts to TICK, TICK, TICK . . . ." Several days earlier, he expressed a similar concern to the same employee: "Dennis sounds down. He does not sound like he can sell CIT without a huge loss."

Although Tyco did not ultimately pursue the larger break-up plan, it spun off CIT in July 2002 for only $4.6 billion, not the $8 billion noted in Young's research reports.

Improperly Sharing Research and Ratings

The complaint further charges that Young gave advance notice of unpublished ratings to institutional clients. Before Young re-initiated coverage of Tyco and another company in September 1999, he selectively disclosed to certain institutional clients that he was going to give Tyco and the other company Merrill's highest rating. Given his close relationship with Tyco, he also routinely gave the company advance notice of unpublished research reports and ratings, solicited Tyco to make changes and generally followed the company's suggested edits. For example in one e-mail, Young forwarded a draft report and proposed rating to Tyco's chief financial officer, stating:

Please review ASAP. I will not send out until I hear from you first! Loyal TYCO employee!

Dissemination of Material Non-Public Information

The complaint charges that in September 1999, Young improperly disseminated material non-public information to selected institutional clients concerning Tyco's acquisition of a Siemens business unit for over $1 billion in cash. As noted in the complaint, Young also received a "grid" detailing the advantages of the Siemen's acquisition from a Tyco investor relations employee. That same day, he received an e-mail from Tyco which stated:

"The attached information makes you an insider until the deal is announced. The information sheet at this stage is preliminary."

Shortly thereafter, Young e-mailed the "grid" to an institutional client and wrote, "You can't use until after announcement." The next day, Tyco advised Young, "Do not put out any information until the story crosses the wire."

Improper Gift To Dennis Kozlowski, Tyco's CEO

NASD also charged that in December 2001, Young violated NASD rules when he gave a case of wine valued at over $4,500 to Kozlowski. NASD rules prohibit a registered person from giving gifts valued at over $100 to any person where such payment is in relation to the business of the employer of recipient.

Under NASD rules, Young may file a response and request a hearing before an NASD hearing panel. Possible sanctions include a fine, suspension, bar or expulsion from the NASD.

Investors may obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an email through NASD's web site at

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