New York State Attorney General Mr Eliot Spitzer targeted Wall Street's most prestigious analysts awards last night in his latest focus on how to reform the stock research business.
Speaking at the annual ceremony for Institutional Investormagazine's "All Star Research Team" awards, Mr Spitzer said the industry's use of the awards as a gauge for stock picking performance is deceptive.
The winners in the polls that determine the awards have little correlation with the best stock pickers, he said, and drew on an independent study commissioned by his office to support the accusations.
"Banks use the Institutional InvestorAll-Star designations to improperly convey to individual investors that their stock picking has garnered awards," Mr Spitzer told an audience of researchers at the Ritz-Carlton hotel in southern Manhattan.
Mr Spitzer, who is heading settlement talks between Wall Street banks and regulators over how to reform research practices, called for the creation of a public database to help investors track the performance of professional stock pickers.
The criticisms caught many off guard. Among the banks that rated highly this year was Citigroup's Salomon Smith Barney, which had more analysts ranked than any competitor. Lehman Brothers took second by that measure, and Merrill Lynch Co. placed third.
Organisers of the ceremony, who were given the speech shortly before the event began, scrambled to rewrite presentations to address the remarks.
Mr Michael Carroll, the magazine's editor in chief, said the awards do nothing more than reflect the opinions of professional money managers, who are polled directly. The awards aren't meant to cater to the smaller, retail investor that Mr Spitzer aims to protect, he said.
Mr Spitzer said the "buy", "hold" and "sell" ratings are of greater significance to smaller, less sophisticated investors. The All-Star awards are used to lend credibility to individual researchers, and so the marketing of their stock picks is dishonest, he said.
In an independent study only two of the more than 150 analysts selected to Institutional Investor's All-Star teams during the last three years have ranked first in their sector when measured by performance of stock recommendations, according to data provided by Mr Spitzer.