“Investors now have firmer guidelines to determine whether they can tap the $399 million restitution fund created by securities regulators over faulty stock research on Wall Street,” writes Susanne Craig in today’s Wall Street Journal.

“The guidance was contained in a court filing in New York federal court Monday, in which regulators defended their proposed $1.4 billion settlement with Wall Street firms for alleged research conflicts as “adequate and in the public interest.” The filing said investors qualifying for the fund must have suffered a net loss on their stock purchase, which must have been made after the publication or receipt of the allegedly tainted research in question. Investors also must be customers of one of brokerage houses in question.”

“The settlement calls for an administrator to identify investors and amounts they are due within nine months after the court signs off on a distribution plan.”

“Under the proposed deal, announced in April, 10 large securities firms will settle allegations by the SEC, self-regulatory organizations and state regulators that they issued misleading stock research in an attempt to win more lucrative investment-banking business. The firms settled the civil charges without admitting or denying them.”

“The firms have signed off on the pact, but it still requires final approval by the federal court. Earlier this month, U.S. District Judge William Pauley came back to regulators with a number of questions, asking, for instance, for more detail on the tax ramifications of the deal and for more information on exactly who might get money under the plan. In its response to Judge Pauley, the SEC provided more clarity on the process. The SEC said mutual funds may receive payments provided they meet all the eligibility requirements. However, fund holders wouldn’t be paid directly, but may get indirect payment if the fund itself is paid.”

“Agreeing to the deal were Bear Stearns Cos.; Credit Suisse Group’s Credit Suisse First Boston; Goldman Sachs Group Inc.; J.P. Morgan Chase & Co.; Lehman Brothers Holdings Inc.; Merrill Lynch & Co.; Morgan Stanley; Citigroup Inc.’s securities unit, formerly known as Salomon Smith Barney; UBS AG’s formerly named UBS Warburg; and U.S. Bancorp’s Piper Jaffray unit. Also agreeing were former Salomon analyst Jack Grubman and former Merrill analyst Henry Blodget. In a joint statement, the firms said: “Each defendant believes that the Commission’s memorandum accurately describes the terms of its [or his] Final Judgment.” Under the deal, the firms would pay almost $433 million for five years for outside, independent research to clients, pay $80 million for investor education and hand over an additional $399 million to the SEC, for distribution to investors. As well, the 10 firms were hit with other penalties totaling $487.5 million.”

“Hundreds of thousands of eligible investors could get payments under the plan, the SEC said. The settlement doesn’t preclude future lawsuits or arbitration claims by private parties. On tax issues, the SEC said there will be no tax credits or deductions for any penalties paid by the firms.”