Judge Not Ready to OK Wall St. Settlement

The judge overseeing a $1.4-billion settlement of regulators’ claims accusing Wall Street firms of biased stock research said Tuesday that he wants more details before approving the agreement.

U.S. District Judge William Pauley in Manhattan said “further explication is required” regarding the finality of the pact before he signs off on it.

Ten big brokerages, including Merrill Lynch & Co. and Morgan Stanley, agreed to the settlement in April to resolve regulatory charges that stock analysts tailored their advice to investors to help the firms win lucrative underwriting business during the bull market.

Pauley outlined several concerns and said he may have others in the future. He asked how the overall settlement can be called final, as each of the agreements with the 10 brokerages are described, when they “speak in abstractions and defer the formulation of specifics to unnamed ‘administrators.’ ”

He also questioned what would happen if the plan isn’t accepted by one or more of the states, along with Puerto Rico and the District of Columbia. The case was brought by the states, the Securities and Exchange Commission and the NASD, formerly the National Assn. of Securities Dealers.

“It sounds like he’s saying there’s still a lot that isn’t detailed,” said Barbara Roper, investor-protection director for the Consumer Federation of America. “These are a lot of the same questions that a lot of people are asking.”

Pauley’s approval is required before investors receive any of the $1.4 billion as restitution. The SEC previously has said investors may have to wait at least 1 1/2 years to get any money, as procedures are established and claims are evaluated by an independent administrator.

The judge also asked who the beneficiaries of the restitution will be, and why some investors, such as mutual fund shareholders, may be excluded.

Regulators and brokerages are expected to respond by June 16.