A Rose by Any Other Name?

Nanotechnology may be the next big thing, but the sweet smell of success is being used to promote nearly worthless stocks, charges Asensio & Co. The New York City-based investment banking firm has asked New York State Attorney General Eliot Spitzer to investigate misuse of the nano label.

Asensio charges that nanotechnology "has become a favorite, and successful, term among America's most fraudulent stock promoters." The firm has reason to want to stop such hype: It makes money by publishing critical reports on stocks that it believes are overvalued and "short selling" them—betting that they will drop in price.

In documents sent to Spitzer, Asensio charges that the Wall Street firm Merrill Lynch created a report on nanotechnology and introduced a Nanotechnology Index that artificially raised some stock prices. Two companies on the index are not even involved in nanotechnology, Asensio claims. Four others "are questionable penny-stock promotions," and one "is involved in a controversy pertaining to simultaneous large insider stock sales and the issuance of false claims."

The authors of the Merrill Lynch report admit that, "like the Internet, nanotech risks being overhyped." But, they say, "nanotechnology could be the next growth innovation following on the heels of information technology."

Merrill Lynch says it is investigating Asensio's objections to its report and index and has assured the smaller firm "that we take your letter seriously." The New York State Attorney General's Office says that, in cases like this, it reviews the charges and decides whether an investigation is warranted.