Street Smart

A bloke called Blodget: what the analyst scandal still teaches investors today

The Blodget scandal still teaches UK investors how to read analyst research, spot conflicts and treat buy ratings with proper caution.

By James Beddington · May 3, 2026

The Blodget scandal still matters because it shows a simple problem: research is never just research. It is also a product, a relationship, and sometimes a sales tool.

Reviewed by Priya Nair, Editorial Director · June 5, 2026, 04:08

In this article

The Short Version

The Blodget scandal exposed the gap between public analyst ratings and private analyst doubts.
It led to tougher rules on conflicts between research teams and investment banking teams.
UK investors still need to read analyst notes with the business model in mind.
Sponsored research and social media tips can carry different conflicts, but the same question applies: who benefits?

Why the Blodget scandal still matters

Henry Blodget was one of the best known internet stock analysts of the dot-com boom. He worked at Merrill Lynch and covered companies that many private investors wanted to own.

The problem was not only that some calls were wrong. Markets get calls wrong all the time. The problem was the split between what investors read and what private messages showed.

In 2003, the SEC said Blodget was barred from the securities industry and agreed to pay $4 million. The regulator said he had issued research that conflicted with privately expressed views.

That is why the Blodget scandal still has value for UK investors. It is not a museum story. It is a live lesson about incentives.

How analyst conflicts work

An investment bank can have several jobs at once. One team may write research on a listed company. Another team may want that same company as a fee-paying client.

That creates pressure even when nobody sends a crude instruction. A friendly research note can help a banking relationship. A harsh sell rating can make the next pitch harder.

The Blodget scandal made that conflict visible. It showed why a recommendation is not just an opinion. It may also sit inside a commercial relationship.

This is close to the issue covered in our guide to recommendation bias. The City has many ways to say caution. A plain sell rating is still rarer than many beginners expect.

What changed after the scandal

The US response was the global research analyst settlement. It forced large Wall Street firms to separate research from investment banking more clearly.

The SEC’s own settlement page explains the aim: reduce the influence of banking fees on published research. The reform did not make analysts perfect. It made conflicts harder to hide.

The UK took a different route. Rules tightened over time, then MiFID II changed how asset managers paid for research from January 2018.

Before MiFID II, research costs were often bundled into trading commissions. After the rule change, many fund managers had to pay for research more directly and show the cost.

The FCA later said research unbundling improved cost control for investors. That matters because hidden costs can shape what research gets produced.

Why UK small-cap research thinned out

There was a trade-off. Once research had a clearer price, asset managers bought less of it. Brokers also cut coverage where the economics looked weak.

That hit small and mid-cap companies hardest. Big companies still attract attention because clients trade them often. Smaller shares can fall through the cracks.

This is where the Blodget scandal connects to ordinary UK portfolios. Cleaner rules can also mean fewer analysts covering smaller names.

We covered that issue in the guide to MiFID II and the small-cap research gap. Fewer notes do not mean fewer risks. They can mean less public scrutiny.

How to read a broker note now

The right response is not to ignore analyst research. Good notes can contain data that private investors could not gather quickly.

The right response is to separate facts from recommendations. The revenue table, cash flow bridge, debt schedule, and market data may be useful. The rating needs more caution.

Read the disclosure page first, not last. Check whether the broker has done corporate finance work for the company. Check whether the note is sponsored or commissioned.

Also compare the note with the latest annual report or trading update. If the research sounds more confident than the company itself, treat that gap as a signal to slow down.

Then ask what the analyst loses if the call is wrong. A cautious answer may be more useful than a bold target price.

This is also why our explainer on what analysts actually do matters. A recommendation is only the final line. The work behind it is where the value usually sits.

What social media changed

The Blodget scandal came from the broker research world. Today, many investors get ideas from X, YouTube, Reddit, Substack, and TikTok.

Some of that work is careful and transparent. Some of it is promotion dressed as research. Some accounts own the shares they talk about and want buyers to follow them.

The same test still works. Ask who pays, who owns, who benefits, and who is accountable if the claim fails.

The FCA can act against market abuse, but it cannot read every post before you do. That puts more responsibility on the reader.

A Worked Example

Suppose you read a buy note on a small AIM company. The note says revenue could double, margins may improve, and the target price is 80% above the current share price.

The Blodget scandal test starts before the valuation. Who paid for the note? Is the broker also the company’s nominated adviser or corporate broker?

Next, split the note into facts, assumptions, and sales language. Facts include reported cash, debt, revenue, and contracts. Assumptions include growth rates and future margins.

The target price is not a fact. It is the output of a model. Change the assumptions and the target price can move fast.

A useful reading habit is simple. Keep the facts, test the assumptions, and treat the recommendation as context rather than instruction.

What This Means For You

The Blodget scandal does not prove analysts are useless. It proves incentives matter. That is a different and more practical lesson.

For UK investors, the habit is to read research with three questions in mind. Who is paying? What is being sold? What would change the analyst’s mind?

If you cannot answer those questions, slow down. A note can still be useful, but it should not carry more weight than it deserves.

That is the lasting point of the Blodget scandal. Disclosure helps, but it does not remove the need for judgement.

In Plain English

The Blodget scandal showed that a public buy rating can hide private doubt. Rules now make that harder, but not impossible.

Research is useful when you know why it exists. Treat every note as evidence to weigh, not a command to follow.