SEC v. Henry McKelvey Blodget, Southern District of New York (Apr. 28, 2003) — Judgment

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
________________________________________________ 
        : 
SECURITIES AND EXCHANGE COMMISSION, : 
        : 
                                                Plaintiff,                                    :            Civil            Action            No.            
        : 
                        -against-                                                            :            03            Civ.            2947            (WHP)            
        : 
HENRY            McKELVEY            BLODGET,                                                :            
        : 
    Defendant.   : 
________________________________________________: 
 
FINAL JUDGMENT AS TO DEFENDANT 
HENRY McKELVEY BLODGET 
 
 Plaintiff Securities and Exchange Commission (“Commission”) having filed a Complaint 
in this action (“Complaint”) and Defendant Henry McKelvey Blodget (“Defendant”), having 
(a) entered a general appearance, (b) consented to the Court’s jurisdiction over Defendant and 
the subject matter of this action, (c) consented to entry of this Final Judgment without admitting 
or denying the allegations of the Complaint (except as to jurisdiction), (d) waived findings of fact 
and conclusions of law, and (e) waived any right to appeal from this Final Judgment: 
I. 
Injunctive Relief 
 IT IS HEREBY ORDERED, ADJUDGED AND DECREED that: 
A.  Defendant, his agents, servants, employees, attorneys, and all persons in active 
concert or participation with them who receive actual notice of this Final Judgment by personal 
service or otherwise, are permanently restrained and enjoined from aiding and abetting violations 
of Section 15(c) of the Exchange Act and Rule 15c1-2 promulgated thereunder [15 U.S.C. 
§ 78o(c) and 17 C.F.R. § 240.15c1-2] by making use of the mails or any means or 

instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to 
induce the purchase or sale of, any security by means of any act, practice, or course of business 
which operates or would operate as a fraud or deceit upon any person. 
B. Defendant, his agents, servants, employees, attorneys, and all persons in active 
concert or participation with them who receive actual notice of this Final Judgment by personal 
service or otherwise, are permanently restrained and enjoined from violating Rule 2110 of the 
Conduct Rules of NASD Inc. (“NASD”) and Rules 401 and 476 of the New York Stock 
Exchange, Inc. (“NYSE”), by publishing research reports that are contrary to his beliefs and fail 
to disclose that fact, do not provide a sound basis for evaluating facts, are not properly balanced, 
and/or contain exaggerated or unwarranted claims and/or opinions for which there is no 
reasonable basis. 
C. Defendant, his agents, servants, employees, attorneys, and all persons in active 
concert or participation with them who receive actual notice of this Final Judgment by personal 
service or otherwise, are permanently restrained and enjoined from violating NASD Rule 2210 
and NYSE Rule 472 by issuing communications to the public that are contrary to his beliefs and 
fail to disclose that fact, do not provide a sound basis for evaluating facts, are not properly 
balanced, and/or contain exaggerated or unwarranted claims and/or opinions for which there is 
no reasonable basis. 
II. 
Monetary Sanctions 
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that:  
 A. As a result of the violations alleged in the Complaint, Defendant shall pay a total 
amount of $4,000,000.  This amount includes: 
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1. $2,000,000, as a penalty; and 
2. $2,000,000, as disgorgement.  
B. Defendant shall pay $4,000,000 by wire transfer within 30 business days of the 
entry of this Final Judgment into an interest bearing account with the Federal Reserve Bank of 
New York (“FRB-NY”), to be designated the “Henry McKelvey Blodget Distribution Fund 
Account,” in accordance with instructions to be provided to Defendant by the FRB-NY and 
authorized or ordered by the Court.  Defendant shall simultaneously transmit proof of its 
payment to the Court, the Clerk of the Court, and the Commission’s counsel in this action.  By 
making this payment, Defendant relinquishes all legal and equitable right, title, and interest in 
such funds, and no part of the funds shall be returned to Defendant.  These funds, together with 
any interest and income earned thereon (collectively, the “Distribution Fund”), shall be held by 
the FRB-NY until further order of the Court.  In the event that any portion of the penalty 
described in Section II.A.1 above is remitted for deposit into the Distribution Fund, such penalty 
amount shall be added to the Distribution Fund and distributed pursuant to the Fair Funds 
provisions in Section 308 of the Sarbanes-Oxley Act of 2002 and any further order of the Court; 
provided, however, that the full penalty amount and such portion shall still be considered a 
penalty for tax and any other purposes.  Pending further order of the Court, in accordance with 
the letter dated August 26, 2003 from the Director of the Administrative Office of the United 
States Courts to the Commission’s counsel in connection with this action, the court registry fund 
fee pursuant to 28 U.S.C. § 1914 for the Distribution Fund shall be four (4) percent of the 
income earned on the Distribution Fund.  The Distribution Fund shall be managed in accordance 
with the terms of, and shall be distributed pursuant to, this Final Judgment and any further 
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applicable orders of the Court.  The plaintiff shall propose to the Court for its approval a plan for 
the disposition of the monies in the Distribution Fund. 
III. 
Standing
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, notwithstanding any 
rule or provision of law, nothing herein shall be deemed to confer standing or right of 
intervention upon any persons other than the Commission or the Defendant.   
IV. 
Record Retention and Non-Destruction Requirement 
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, for a period of five 
years from the effective date of this Final Judgment or such shorter or longer period as the Court 
may order, Defendant, and his agents, affiliates, servants, employees, attorneys, and those 
persons in active concert or participation with them, and each of them, are hereby enjoined from 
destroying, mutilating, concealing, altering, or disposing of:  (a) any research distributed by 
Defendant or Merrill Lynch Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) during the 
relevant period identified in the Complaint; (b) documents sufficient to identify all customers 
who bought or sold equity securities of the issuers as to which Defendant issued research during 
the relevant period identified in the Complaint (the “Transactions”), including but not limited to 
documents sufficient to identify the dates, amounts, and prices of the Transactions; (c) 
documents sufficient to identify which customers received which research distributed by 
Defendant during the relevant period identified in the Complaint; (d) order entry information 
sufficient to identify whether the Transactions were solicited by Defendant or Merrill Lynch; (e) 
documents sufficient to identify the publicly-traded companies for which Merrill Lynch sought 
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to provide, was engaged to provide, or did provide investment banking services during the 
relevant period identified in the Complaint; and (f) any and all written (including electronic) 
communication, including communications to and from customers and intra-firm 
communications, relating to Merrill Lynch’s investment banking and equity research operations 
during the relevant period identified in the Complaint; provided, however, that Defendant need 
not retain duplicate identical copies of public documents filed with the Commission or any other 
regulatory authority. 
V. 
Defendant’s Consent Incorporated by Reference 
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant’s Consent 
previously filed in this action is incorporated herein with the same force and effect as if fully set 
forth herein, and Defendant shall comply with all of the undertakings and agreements set forth 
therein. 
VI. 
Court to Retain Jurisdiction 
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain 
jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment. 
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VII. 
Entry of Judgment Forthwith
 
 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, there being no just 
cause for delay, the Clerk of the Court shall enter this Judgment forthwith and without further 
notice. 
 
Dated: New York, New York 
            ______________,            2003            
                                                                        ____________________________________            
                                                                        WILLIAM            H.            PAULEY            III            
                                                                        UNITED            STATES            DISTRICT            JUDGE            
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UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
________________________________________________ 
        : 
SECURITIES AND EXCHANGE COMMISSION, : 
        : 
    Plaintiff,   : Civil Action No. 
        : 
  -against-     : 03 Civ. 2947 (WHP) 
        : 
HENRY McKELVEY BLODGET,    : 
        : 
    Defendant.   : 
________________________________________________: 
 

FINAL JUDGMENT AS TO DEFENDANT 
HENRY McKELVEY BLODGET 

 
 Plaintiff Securities and Exchange Commission (“Commission”) having filed a Complaint 

in this action (“Complaint”) and Defendant Henry McKelvey Blodget (“Defendant”), having 

(a) entered a general appearance, (b) consented to the Court’s jurisdiction over Defendant and 

the subject matter of this action, (c) consented to entry of this Final Judgment without admitting 

or denying the allegations of the Complaint (except as to jurisdiction), (d) waived findings of fact 

and conclusions of law, and (e) waived any right to appeal from this Final Judgment: 

I. 

Injunctive Relief 

 IT IS HEREBY ORDERED, ADJUDGED AND DECREED that: 

A. Defendant, his agents, servants, employees, attorneys, and all persons in active 

concert or participation with them who receive actual notice of this Final Judgment by personal 

service or otherwise, are permanently restrained and enjoined from aiding and abetting violations 

of Section 15(c) of the Exchange Act and Rule 15c1-2 promulgated thereunder [15 U.S.C. 

§ 78o(c) and 17 C.F.R. § 240.15c1-2] by making use of the mails or any means or 



instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to 

induce the purchase or sale of, any security by means of any act, practice, or course of business 

which operates or would operate as a fraud or deceit upon any person. 

B. Defendant, his agents, servants, employees, attorneys, and all persons in active 

concert or participation with them who receive actual notice of this Final Judgment by personal 

service or otherwise, are permanently restrained and enjoined from violating Rule 2110 of the 

Conduct Rules of NASD Inc. (“NASD”) and Rules 401 and 476 of the New York Stock 

Exchange, Inc. (“NYSE”), by publishing research reports that are contrary to his beliefs and fail 

to disclose that fact, do not provide a sound basis for evaluating facts, are not properly balanced, 

and/or contain exaggerated or unwarranted claims and/or opinions for which there is no 

reasonable basis. 

C. Defendant, his agents, servants, employees, attorneys, and all persons in active 

concert or participation with them who receive actual notice of this Final Judgment by personal 

service or otherwise, are permanently restrained and enjoined from violating NASD Rule 2210 

and NYSE Rule 472 by issuing communications to the public that are contrary to his beliefs and 

fail to disclose that fact, do not provide a sound basis for evaluating facts, are not properly 

balanced, and/or contain exaggerated or unwarranted claims and/or opinions for which there is 

no reasonable basis. 

II. 

Monetary Sanctions 

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that:  

 A. As a result of the violations alleged in the Complaint, Defendant shall pay a total 

amount of $4,000,000.  This amount includes: 

- 2 - 



1. $2,000,000, as a penalty; and 

2. $2,000,000, as disgorgement.  

B. Defendant shall pay $4,000,000 by wire transfer within 30 business days of the 

entry of this Final Judgment into an interest bearing account with the Federal Reserve Bank of 

New York (“FRB-NY”), to be designated the “Henry McKelvey Blodget Distribution Fund 

Account,” in accordance with instructions to be provided to Defendant by the FRB-NY and 

authorized or ordered by the Court.  Defendant shall simultaneously transmit proof of its 

payment to the Court, the Clerk of the Court, and the Commission’s counsel in this action.  By 

making this payment, Defendant relinquishes all legal and equitable right, title, and interest in 

such funds, and no part of the funds shall be returned to Defendant.  These funds, together with 

any interest and income earned thereon (collectively, the “Distribution Fund”), shall be held by 

the FRB-NY until further order of the Court.  In the event that any portion of the penalty 

described in Section II.A.1 above is remitted for deposit into the Distribution Fund, such penalty 

amount shall be added to the Distribution Fund and distributed pursuant to the Fair Funds 

provisions in Section 308 of the Sarbanes-Oxley Act of 2002 and any further order of the Court; 

provided, however, that the full penalty amount and such portion shall still be considered a 

penalty for tax and any other purposes.  Pending further order of the Court, in accordance with 

the letter dated August 26, 2003 from the Director of the Administrative Office of the United 

States Courts to the Commission’s counsel in connection with this action, the court registry fund 

fee pursuant to 28 U.S.C. § 1914 for the Distribution Fund shall be four (4) percent of the 

income earned on the Distribution Fund.  The Distribution Fund shall be managed in accordance 

with the terms of, and shall be distributed pursuant to, this Final Judgment and any further 

- 3 - 



applicable orders of the Court.  The plaintiff shall propose to the Court for its approval a plan for 

the disposition of the monies in the Distribution Fund. 

III. 

Standing

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, notwithstanding any 

rule or provision of law, nothing herein shall be deemed to confer standing or right of 

intervention upon any persons other than the Commission or the Defendant.   

IV. 

Record Retention and Non-Destruction Requirement 

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, for a period of five 

years from the effective date of this Final Judgment or such shorter or longer period as the Court 

may order, Defendant, and his agents, affiliates, servants, employees, attorneys, and those 

persons in active concert or participation with them, and each of them, are hereby enjoined from 

destroying, mutilating, concealing, altering, or disposing of:  (a) any research distributed by 

Defendant or Merrill Lynch Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) during the 

relevant period identified in the Complaint; (b) documents sufficient to identify all customers 

who bought or sold equity securities of the issuers as to which Defendant issued research during 

the relevant period identified in the Complaint (the “Transactions”), including but not limited to 

documents sufficient to identify the dates, amounts, and prices of the Transactions; (c) 

documents sufficient to identify which customers received which research distributed by 

Defendant during the relevant period identified in the Complaint; (d) order entry information 

sufficient to identify whether the Transactions were solicited by Defendant or Merrill Lynch; (e) 

documents sufficient to identify the publicly-traded companies for which Merrill Lynch sought 

- 4 - 



to provide, was engaged to provide, or did provide investment banking services during the 

relevant period identified in the Complaint; and (f) any and all written (including electronic) 

communication, including communications to and from customers and intra-firm 

communications, relating to Merrill Lynch’s investment banking and equity research operations 

during the relevant period identified in the Complaint; provided, however, that Defendant need 

not retain duplicate identical copies of public documents filed with the Commission or any other 

regulatory authority. 

V. 

Defendant’s Consent Incorporated by Reference 

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendant’s Consent 

previously filed in this action is incorporated herein with the same force and effect as if fully set 

forth herein, and Defendant shall comply with all of the undertakings and agreements set forth 

therein. 

VI. 

Court to Retain Jurisdiction 

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that this Court shall retain 

jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment. 

- 5 - 



VII. 

Entry of Judgment Forthwith 

 IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, there being no just 

cause for delay, the Clerk of the Court shall enter this Judgment forthwith and without further 

notice. 

 
Dated: New York, New York 
 ______________, 2003 
      ____________________________________ 
      WILLIAM H. PAULEY III 
      UNITED STATES DISTRICT JUDGE 

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