Merrill Lynch has confirmed that it has reached an agreement with the New York State Attorney General to settle charges that the firm misled investors with overly optimistic research on investment banking clients.

The settlement provides for Merrill Lynch to make a civil payment of US$48 million to New York State, and an additional US$52 million to settle the matter with all other states — with both payments contingent on acceptance of the agreement by all states.

The agreement settles all aspects of the Attorney General’s inquiry pertaining to Merrill Lynch and all present and former employees. The inquiry centered on Merrill Lynch’s Internet sector securities research from 1999 to 2001. The settlement represents neither evidence nor admission of wrongdoing or liability by Merrill.

“Because our many employees work day after day to place our clients’ interests first, resolution of this matter is very important to us. Today’s result will ultimately benefit all investors and the capital markets,” said David Komansky, chairman and CEO, and Stan O’Neal, president and COO.

“Our objective from the start has been to reinforce investor confidence in the way securities analysts conduct their research and make investment recommendations. The actions we are taking will ensure that analysts are compensated only for activities intended to benefit investors. We believe this establishes a new industry standard for independence and objectivity of research,” they added.

Merrill Lynch will implement a complete separation of the evaluation and determination of research analyst compensation from the investment banking business, so that analysts will be compensated for only those activities intended to benefit Merrill Lynch’s investor clients

The firm will create a new Research Recommendations Committee to review all initiations of and changes to stock ratings for objectivity, integrity and a rigorous analytical framework. It will also the appointment of a compliance monitor who, for a period of one year, will ensure compliance with the agreement.

As well, Merrill will implement a new system to monitor electronic communications between investment bankers and equity research analysts, along with various new disclosure provisions.

Komansky and O’Neal noted that the company was “pleased to put this matter behind us in a way that seriously addresses investor concerns. We believe strongly in the integrity of our research, which has served investors well for many decades. At the same time we have apologized for any unprofessional behavior. Looking ahead, we intend to vigorously implement these new policies and reassert our traditional position as a valued source of information for investors.”