Theflyonthewall.com, which is a news aggregator service (much like most of the blogosphere these days, but without the snarky commentary), and is hosted on Zero Hedge, has just seen a major driver of its business model cut off, after several banks just won an injunction that blocks Fly from notifying its clients when a bank may have issued a research event such as an Upgrade or, on those extremely rare occasions nowadays, Downgrade. The banks who feel violated by everyone getting access to information about their sellside detritus contemporaneously, not just wealthy accounts and wire services, are Barclays, Bank of America Corp.’s Merrill Lynch, and Morgan Stanley. As Bloomberg reports, "U.S. District Judge Denise Cote in New York today granted a request for an injunction sought by the three banks. They argued at a March trial that Theflyonthewall.com, a Summit, New Jersey- based firm with about 30 employees, wrongfully obtains and sells reports on changes to the banks’ stock evaluations." This is merely a case of picking on the weakest: the next ones to lose their First Amendment right will be, in order of importance, StreetAccount, Thomson Street Events, Briefing, and, ultimately Bloomberg. The reason: keep the market as two-tiered as possible so that clients of the above three banks (which list will likely expand promptly as more banks join in) have an upper hand over all the slower retail and algo operations. With this forced lag in information (which is a joke because anyone who cares, knows the second a research report goes public anyway), and with the ever increasing transaction times courtesy of nanosecond collocation facilities, soon the self-cannibalizing market will only rely on stealing money from those accounts who are still willing to participate in a market that is now split into two distinct groups: those who make money, and are clients of MS, ML and Lehman (and the rest of Wall Street), and everyone else. This is a huge hit for not just traditional media, but for the blogosphere as well, which revels in the freedom of not just ridiculing banks' (Merrill Lynch) upgrades of horrendously shitty companies (REITs), but enjoys doing so in real time. We expect that the next step is that any blog or medium that has any negative things to say about Merrill, MS or Barclays (pretty much most independent media), will be served with a summons as soon as any criticism is made public.
As for Fly, ther following is a summary of the injunction terms:
The banks sought to block publication of their recommendations for four hours from the release or until noon, whichever is later. Cote chose a shorter period. For reports issued before the market opens, the bar will be in effect until 10 a.m.. For those issued while the market in New York is open, it will be in effect for two hours after publication. “This time frame preserves incentives for the firms to create and disseminate research reports to their investor clients, while still recognizing the inevitable, fast-moving and widespread informal communication of recommendations on Wall Street,” she wrote.
So these banks, all of which still use TALF, and are thus beholden to the taxpayer even though they may argue that TARP has been paid off so they can pay billions in bonuses, are now saying "hey taxpayers, rot in hell - if you want to get access to what is essentially public information, you will have to get in line, and only trade after Fidelity and Vanguard have already put their positions on." While we are not PR specialists, this is not the right way to gain public support for the next time all the Wall Street kleptorcrats need a bail out.
Furthermore, this injunction is about the dumbest thing one could imagine: news of sell side research changes are reported immediately by Bloomberg, Reuters and all the major newswires. Why did Lehman, Morgan and Merrill not take them on? Oh yeah, limited budget. And now that they have a case precedent, the door is open to demand cashola or threaten with shutting down the big boys. As for the rest of the blogosphere - good luck. As the Fly's lawyer Glenn Ostrager points out:
“The plaintiffs’ plan” is “to select probably one of, if not the, smallest player on the street with the most limited resources and pursue this claim so that they then, with that advantage, can go to Bloomberg and others,” Ostrager said.
As for the banks point of view: apparently it is all Fly's fault that bank sellside desks have been a massive loss center. The fact the the quality of research is biased and, frankly, horrendous, has apparently nothing to do with it.
“Each firm has lost business in, and has reduced investment in and output of United States equity research as a result of the free riding by Fly and other services,” Marks told Cote at the nonjury trial. “This is a bread-and-butter case of hot-news appropriation.”
And while the judge obviously keeled over to the banks' demands, she did have some logical questions:
"Can the plaintiffs really effectively prevent their headlines from emerging into the marketplace and being publicly widespread?” Cote said.
She also asked why only Theflyonthewall.com was sued.
“Why should an injunction issue against a small business, a start-up, a small entrepreneur, when Goliath is permitted to do the same thing,” Cote asked. “If an injunction issues against Fly, and one year from now Bloomberg or Thomson or Reuters is doing the same thing, why is that fair?”
We are confident that as banks seek to shut up more and more of the internet, that the fringe blogosphere will be next to be forcefully quieted, with or without the administration's help. Until that time, we will continue to present you with all the critical information you need, without prejudice, and without worries of retribution, even as we slide deeper into a complete and utter market (and soon, social) totalitarian regime of the haves and have nots.
Full copy of the injunction, and the first shot across the bow to block free internet-based speech: