TOP STORIES--MAY 19-24

Merrill Lynch Fined Over Stock Advice

Brokerage giant Merrill Lynch & Co. agreed to pay $100 million in fines to settle charges of tainted advice by its stock analysts and said it would adopt reforms aimed at restoring the credibility of Wall Street’s investment guidance.

The deal with New York Atty. Gen. Eliot Spitzer, reached after weeks of negotiations, should be a template for industrywide change, Spitzer said.

But the agreement doesn’t require Merrill to admit wrongdoing and provides no restitution for investors who believe they lost money when they followed allegedly misleading stock advice. Investors will have to sue Merrill on their own, Spitzer said.

Some experts said the Merrill case is a landmark in exposing for average investors the inherent conflicts of interest at major brokerages.

Critics long have contended that research analysts face pressure to skew opinions of stocks to better the chances that the subject companies would grant fee-rich investment banking work to their brokerages.

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Rigas Family Gives Up Adelphia Control

The Rigas family buckled to mounting pressure from bankers, investors and outside directors and agreed to relinquish control of Adelphia Communications Corp. and contribute $1 billion worth of assets to cover mounting liabilities.

The move improves the cable company’s chances--at least slightly--of averting a bankruptcy.

Founder John Rigas, who resigned as chairman, chief executive and president earlier this month, stepped down from the nine-member Adelphia board.

His three sons, Michael, James and Timothy, also resigned as directors. Michael and James Rigas gave up top management roles, after the resignation the previous week of Timothy Rigas as chief financial officer.

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‘Short Seller,’ FBI Agents Charged with Fraud

Federal agents broke up an alleged securities scheme that included two FBI agents.

Authorities indicted Internet-based stock trader Amr I. Elgindy, known as an outspoken “short seller,” and four others, charging them with a fraud that involved driving share prices lower.

Elgindy, 34, who operates from Encinitas, was ordered held without bail. The alleged fraud involved using confidential government information to target companies for “short selling.”

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Drexler to Step Down as Gap Chief Executive

Millard “Mickey” Drexler, the legendary merchant who built Gap Inc. from a single shop into the nation’s largest chain of specialty clothing stores, said he is stepping down as chief executive of the struggling company.

Drexler, 57, was hired by the Fisher family to run Gap in 1983, helping to build the company into an empire of more than 4,200 stores operating as Gap, Old Navy and Banana Republic.

Once an icon of the casual crowd, Gap had been struggling after what analysts say was too much expansion and an attempt to woo a younger, trendier shopper. More than two years of declining sales have led to the stock losing more than half its value.

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Electricity Firms Deny Enron-Style Strategies

Some of California’s biggest electricity players denied to federal regulators that they committed Enron-style manipulation of California’s electricity market. A few admitted that they engaged in some types of trading that critics contend may have worsened the state’s energy woes, but only in small amounts and for reasons other than manipulation, the companies said in sworn filings with the Federal Energy Regulatory Commission.

All of the companies defended their behavior as legal and within the rules of the state’s electricity markets run by the California Power Exchange and the California Independent System Operator.

Separately, FERC widened its investigation of questionable trading strategies to include sellers of natural gas in California and other Western states. The investigation of “wash” trading--prearranged deals in which a company sells a given volume of a commodity to another firm and them buys it back at the same price--had been focused on electricity marketers.

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Citigroup to Buy Golden State Bancorp

Citigroup Inc. agreed to buy the parent of San Francisco-based savings and loan California Federal Bank for $5.8 billion, giving it 1.5 million new customers and ownership of a major California branch-banking network.

Citigroup’s $40.10-a-share cash and stock deal to acquire Cal Fed parent Golden State Bancorp Inc. would give it 352 additional branches, mostly in California, and $54 billion in assets.

The deal would almost double the number of New York-based Citigroup’s U.S. branches and combine the nation’s largest financial institution with the nation’s third-largest thrift.

If the deal closes, Citigroup’s deposit market share in California will jump from 1.6%--10th in the state among banks and thrifts--to about 6%.

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Blue Cross Backs Off ‘Tiered Hospital’ Plan

Blue Cross of California has backed off selling “tiered hospital” policies, which group hospitals by cost and increase co-payments for consumers who use costlier facilities.

Senior executives at Blue Cross, the state’s largest health insurer, said the company changed course after encountering vigorous opposition from hospitals. Blue Cross has had a contentious relationship with hospitals and recently the insurance company has tried to take a more conciliatory approach.

Tiered hospital plans have come under fire since PacifiCare Health Systems Inc. and Blue Shield of California introduced them this year as a way to reduce premiums and contend with escalating costs.

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Music Industry to Call for Radio Payola Probe

Several members of Congress called for the federal government to investigate whether Clear Channel Communications Inc. and other radio broadcast giants are violating payola laws.

Their comments followed a report in The Times that said a coalition of record companies and artist unions was preparing to ask the Federal Communications Commission to investigate questionable promotion practices in the music industry in which middlemen pay radio stations for the exclusive right to pitch songs on behalf of record labels.

The music industry says a few promoters attempt to sidestep federal anti-payola laws by paying broadcasters annual fees they say are not tied to airplay of specific songs and then charging record labels when a song is added to a radio station’s playlist.

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Albertson’s to Add, Remodel Stores

Supermarket giant Albertson’s Inc. plans to spend $1 billion in the next three years to remodel and add expanded food and drug stores in Southern California to better compete with rivals Ralphs and Vons.

Boise, Idaho-based Albertson’s has been struggling to gain a bigger share in this highly competitive market after acquiring the Lucky chain when it bought American Stores Co.

Although Ralphs and Vons have added pharmacies to many of their supermarkets over the last several years, many of the new Albertson’s stores will put a full supermarket and drugstore under one roof.

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Army’s New Message: Uncle ‘Sim’ Wants You

Eager to prove it’s not your grandfather’s military, the Army is developing video games to recruit and build awareness among Generation Y.

At the Electronic Entertainment Expo in Los Angeles, the Army unveiled two games designed to appeal to a media-saturated, tech-bombarded generation.

One is a sanitized version of “Unreal Tournament,” a classic first-person shooting game known for its graphic, nonstop killing. The other is a take on “The Sims,” a popular game that mimics life.

But instead of dismembering mutants or pursuing romance, players can work on their organizational skills, free hostages and rise to the rank of first sergeant.

The games are part of the Army of One marketing campaign, which stresses professionalism and the importance of the individual--themes marketers say resonate with youths.

The Army joined other video game producers in showcasing the latest technology at the annual trade show.

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For a preview of this week’s business and economic news, please see Monday’s Business section.