U.S. securities regulators have approved a settlement forcing 10 of Wall Street's biggest investment firms to pay $1.4 billion to settle allegations that they issued biased stock ratings to attract investment-banking business.

The final settlement, one of the largest penalties ever imposed by securities regulators, is based on a tentative agreement reached in December 2002 between regulators and some of the nation's most prominent investment firms, including Goldman Sachs, Morgan Stanley, and Merrill Lynch.

The investigation of the firms was spearheaded by New York Attorney General Eliot Spitzer, who says e-mail evidence demonstrates that the firms knowingly supplied investors with fraudulent market analyses.

"Analysts, back and forth, derided their own research," he said. "Brokers knew the research was worthless. We have seen how, in the lower levels of these investment houses, it was clearly understood that this research should not have been relied upon."

Mr. Spitzer says that false valuations proved so profitable to the firms that supervising executives consistently ignored such e-mails, and continued to authorize the dissemination of biased research.

The only loser, he says, was the individual investor.

"Research had been subjugated to the needs of the investment bankers, and, as part of this triangular relationship, CEO'S were also the beneficiaries, because they received shares in hot stocks through spinning," he said. "In this triangular relationship, everybody won, except the investor."

Mr. Spitzer says most of the money will go toward the restitution of funds lost by private investors. He says, however, that the restitution process will be long and cumbersome.

Securities and Exchange Commissioner William Donaldson says the settlement includes a comprehensive restructuring of the market analysis system.

"The numerous obligations we impose on the defendants, taken all together, will fundamentally change the role and perception of research at Wall Street firms," he said. "I believe these reforms will go a long way toward restoring the honorable legacy of the research profession."

The most heavily-penalized firm, at $400 million, is Salomon Smith Barney, followed by Merrill Lynch and Credit Suisse at $200 million, Morgan Stanley at $125 million, and Goldman Sachs at $110 million. Mr. Donaldson says the penalties are 'equal to the grossness of the crimes,' and deliver a message that the firms 'will not soon forget.' Mr. Donaldson says that because the settlement is the result of a civil and not a criminal suit, no one will go to jail. But, he says, some individual analysts will pay steep fines, an be barred from working in the securities industry for life. The investigation is continuing.