Wall Street Pillow Talk

This Wall Street merger held the potential for big trouble from the start. Holly Becker, an influential Internet stock analyst, could bump share prices up or down with a few well-chosen words. Michael Zimmerman, a trader at a hedge fund with billions to invest, was constantly shifting money in and out of stocks that looked ripe for sudden movement. Once the two began dating, all it would take for Zimmerman to make a fortune for his firm would be for Becker to whisper the names of stocks she soon would upgrade or downgrade—and for Zimmerman to bet early on them. That's exactly what happened, regulators say, as Zimmerman made several million dollars in illegal insider-trading gains in the year before he married Becker in August 2000.

Enforcement officials at the Securities and Exchange Commission (sec) have recommended that the agency file suit against Becker, 36, and Zimmerman, 32, alleging that the couple illegally traded on insider information about the stocks of Avon Products, Drugstore.com and eBay. The story was first reported on financial-news channel CNBC and was confirmed by sources close to the investigation.

During the period in question, Zimmerman was employed at Omega Advisors, a hedge fund based in New York City, while Becker worked at Jennison Associates and then at Salomon Smith Barney. In the case of Drugstore.com, Zimmerman allegedly bought the stock just before Becker issued a positive report. With Avon and eBay, Zimmerman sold shares short—a bet that their prices would fall—just ahead of the release of negative reports. The Avon tip allegedly came not from Becker's research but from that of a former colleague at Salomon, who had asked Becker for advice before issuing a negative report. David Brodsky, the attorney for Becker and Zimmerman, declined to comment, as did Omega officials.

The allegations represent a new set of problems for Becker and Zimmerman, whom the sec notified in August of possible insider-trading charges stemming from Zimmerman's trades of Amazon.com in July 2002. By then, Becker had moved to Lehman Brothers, where she had presciently questioned the value of stocks like Amazon.com and Yahoo. Zimmerman was at another hedge fund, SAC Capital Advisors, based in Stamford, Conn., where he remains employed. SAC declined to comment. Becker was suspended from Lehman last August. Officials there would say only that the matter "does not involve the firm."

Becker is the latest star analyst to face a public rebuke, following Henry Blodget of Merrill Lynch and Jack Grubman of Salomon. Both men resigned after being caught touting stocks about which they had internally expressed doubts—and which provided lucrative banking business to their employers. With regulators set to go public this week with e-mail and other documents from a long investigation of research practices, more stars are likely to fall.