Will Fleming’s Grasp On High Office At Merrill Lynch Be Undone By Justice’s Criminal Investigation?
Legal Experts Doubtful, But The Rumors Persist

Wall Street abounds with speculation that Greg Fleming, who has managed to hold on to his position as sole president of Merrill Lynch through a whirlwind of management changes, might finally be facing a challenge that could shake him out of his elevated position.

Fleming’s presidency has endured the worst losses in the history of Merrill, internal criticism, and alleged pressure from newly minted chief executive John Thain. Although the Justice Department’s investigation is in its earliest stage, rumors are already spreading, both within and outside of Merrill, that the threat of a criminal investigation might bring Fleming down.

Fleming is described by many as a “brilliant investment banker” and his management skills as the head of the global investment banking business have been heralded. But now that the Justice Department has announced a criminal investigation into the subprime mortgage market and requested from the SEC documents pertaining to Merrill, many believe he may find himself squarely in the sights of prosecutors. Legal experts, however, warn that the investigation is in its very early stages so this speculation may be premature.

It’s important to note that no one DealBreaker spoke to alleged any illegal activity on the part of Fleming. But recent experience with zealous prosecutors has created a widespread paranoia on Wall Street. Many believe that prosecutors have become too eager to target top executives, and too creative with the way they interpret laws to criminalize the way Wall Street does business. The ghost of Mike Milken still haunts the Street.

“He was the guy who was there at every risk meeting. And he’s the last guy standing. Stan, Ahmass, and all the others are gone. He’s the one left with the taint of the mortgage mess,” a well-placed source tells DealBreaker. Stan O’Neal was the former chief executive of Merrill. Ahmass Fakahany was co-president and chief operating officer.

Some legal experts say this popular impression of prosecutors targeting top executives is overblown. Federal prosecutors have several years to bring cases and aren’t especially attracted to executives simply because they remain at their posts, one attorney told DealBreaker. Another lawyer specializing in white collar crime, however, said the careers of former federal Rudolph Giuliani and former Attorney General Eliot Spitzer as demonstrating that targeting a top executive can be attractive to a prosecutor who wants to build a political career.

Some close to the situation believe that Fleming could wind up a sacrificial lamb, offered up to the Justice Department in order to appease investigators and create the impression of cooperation and compliance. General Counsel Rosemary Berkery, another pre-Thain holdover in the senior management at Merrill, has also been cited as possibly attracting the attention of zealous prosecutors. There are rumors she may retire soon. Others expect that Merrill might try to make a lower level, less prominent employee the fall guy if a case were brought.

“They always go after some ‘lone gunman’ who might have been a bit too greedy,” one person at a rival firm said. “That’s the Wall Street way.”

Within Merrill, there is concern that the criminal investigation could prove a serious distraction for Fleming, and possibly other executives, at a time when the company is attempting to recover from recent setbacks.

“This thing will be completely overwhelming,” one Merrill employee said.

Legal experts, however, say that the investigation is probably not taking up too much of Merrill’s time or attention at this early stage.

Merrill is just one of many Wall Street firms facing investigations from federal and state authorities as a result of recent turmoil unleashed by the collapse of the subprime mortgage market.