Crisis of Credibility.

NOT so long ago, analysts with the top-tier underwriting firms were the toast of Wall Street. And why not? As the markets soared and portfolios expanded, their often optimistic forecasts and generous evaluations of IPOs were borne out by an unprecedented leap in the value of the major markets.

But with the collapse of the tech sector and devastating paper losses due to sagging stock prices, analysts find themselves under fire like never before. Their unrealistic "buy" recommendations of countless companies have unleashed a deafening chorus of conflict of interest charges -- and hundreds of fraud lawsuits -- from investors, while triggering congressional hearings and investigations from both the Securities and Exchange Commission and the U.S. Department of Justice.

It would be a stretch to blame Wall Street analysts for the national economic slowdown. But there's no question that troubling conflicts exist when analysts release what are supposed to be objective assessments of companies in which their firms have a more than a passing interest.

It's a bit late in the game, but the increased scrutiny of analysts and the actions of the underwriting firms that employ them is a positive development.

For years, investors and business journalists have called upon analysts as presumably disinterested observers who could offer an objective view of a company -- the good, the bad and the ugly. But with the so-called "Chinese Wall" separating analysts from brokers becoming ever thinner, it's inevitable that researchers are often thinking more about gaining their boss's approval and less about offering unclouded judgments.

Take, for example, the case of the now-bankrupt Planet Hollywood restaurant chain, documented by Business Journal columnist Benjamin Mark Cole in his new book "The Pied Pipers of Wall Street: How Analysts Sell You Down the River."

Despite overwhelming evidence that the company was on shaky ground from the start, friendly quotes from fund managers -- some employed by Planet Hollywood's major underwriters -- propelled the stock to more than 40 percent above its offering price on the first day of trading. As a handful of initial investors, many of them Hollywood celebrities, cashed out in time to take huge profits, the company's fortunes swooned. Ultimately, a few insiders got rich while the majority of investors took it on the chin.

It's fair to say that revelations of such questionable conduct have caused the Business Journal and other publications to renew their commitment to scrutinizing the role played by analysts. At the same time, investors are learning that there is often a big difference between an analyst's buy or sell recommendation and financial reality.

The companies now under the SEC microscope reads like a who's who list of Wall Street financial houses; Merrill Lynch, Bear Steams, Salomon Smith Barney and Credit First Suisse Boston.

In response to the disintegrating reputation of analysts, the Securities Industry Association has unveiled a new code of ethics aimed at ensuring the integrity of analyst reports. That's a good start. But before individual investors can feel comfortable that they are competing on a level playing field with Wall Street insiders and the financial giants, more light must be shed on analysts and the companies that employ them.