ASSOCIATED PRESS / 1998 As part of Merrill Lynch's $100 million settlement with New York state over charges its analysts misled investors, Hawaii will receive $500,000.

Hawaii to get $500,000
in Merrill Lynch deal

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Star-Bulletin staff and wire

Merrill Lynch has sent Hawaii a check for $500,000 as part of an approximately $100 million settlement negotiated earlier this year with New York to settle charges that the brokerage's analysts misled investors.

Besides Hawaii, 47 other states, plus Washington, D.C., and Puerto Rico, have either received payment or will shortly, Merrill spokesman Mark Herr said. The checks were cut on Monday.

Merrill, the nation's largest brokerage, agreed to the fine in May after a 10-month investigation by New York Attorney General Eliot Spitzer that uncovered e-mails from Merrill analysts disparaging stocks they publicly praised, allegedly to win lucrative investment banking business. The agreement forced the firm to separate research from its investment banking division, a move mirrored by Citigroup last month.

Ryan Ushijima, commissioner of securities for the state of Hawaii, said the money will be placed in the Department of Commerce and Consumer Affairs compliance resolution fund. Ushijima said it will go toward funding the operations of the state's enforcement operations, which oversee the Securities and Exchange Commission's state securities laws.

Hawaii investors won't directly benefit since the monetary amounts are fines and not restitution. However, Ushijima said investors will benefit from "improvement in the integrity and the fairness of the marketplace."

Creating a firewall between research and banking has been a hot topic under discussion between big Wall Street firms and securities regulators now nearing a settlement on how best to resolve such conflicts of interests. Fines in this broad settlement are expected to exceed $1 billion and come from several top firms, including Goldman Sachs, Morgan Stanley and Lehman Brothers.

Ushijima said Hawaii currently is working on a task force investigation of brokerage Bear Stearns, with New Jersey serving as the lead state. Delaware, Pennsylvania, Vermont and Maine also are on the task force. Other states are working on task forces involving other brokerage investigations.

Under the terms of Merrill's settlement, New York state received the highest payout with $48 million because it took the lead in the investigation, said Marc Beauchamp, executive director of the North American Securities Administration Association, an umbrella group for state securities regulators.

Beauchamp's group received $2 million, while the remaining $50 million went to the other states, with the largest amounts going to those with the most people. California, for instance, took in $5.6 million, while Wyoming received $500,000, a floor set for the smaller states.

The lone holdouts not signing off on the national settlement with Merrill are Arizona and Missouri, slated to be paid $854,732 and $932,128, respectively, when they hammer out their differences with Merrill, NASAA and Merrill.

"We continue work with these two states and are confident to get things resolved with them as soon as possible" Herr said.