Merrill Lynch (MER) settled this week with New York's attorney general and told investors it was sorry. But the firm's troubles may be far from over.Paying a $100 million fine will shield Merrill and its officers from criminal prosecution in the case, which stems from claims that the company's research misled investors. Still, individuals have yet to be compensated. With scores of civil suits already filed and investor losses in recent years reaching into the billions of dollars, the firm could yet face massive civil liability, observers say.To get a handle on Merrill's prospects in court and to determine how the New York settlement could affect the outcome, talked to Nathan Finch, a securities attorney at Caplin & Drysdale in Washington. Drysdale has represented individuals and companies in securities and financial fraud litigation.

Does the language of the settlement make it more difficult for civil lawsuits against Merrill to be successful?

Nathan Finch:

It doesn't make it any more difficult for them to succeed, but it puts Merrill in a better position than if they'd admitted liability or admitted that they'd violated any laws. Just apologizing for certain conduct is very different than saying "I recognize that I broke the law" or "I admit that I was liable for violating either the Martin Act or the Securities Act."

By not admitting liability, plaintiffs are in the same boat as if the settlement had never happened. They're just going to have to prove their cases, and they'll stand or fall on their own individual merits.

Could individuals use the apology by Merrill to bolster their case, though?

Nathan Finch:

The law treats an apology and an admission of liability very differently, and I think Merrill would try very hard in whatever litigation it faces to keep the fact of the settlement out of evidence. Typically, settlements with other parties are not usually admissible in civil litigation, although here, because it's been so played up in the press, I think any arbitrator is going to know that this settlement exists.

If investors are considering filing suit against Merrill, what kind of evidence would they need to present to have a better chance of success? Do they need to show a direct linkage between the analysts' advice and the stocks they bought?

Nathan Finch:

In an individual case, that's probably what they're going to have to show. They're also going to have to show what the law calls scienter, or that there was an intent to deceive them or defraud them on the part of their brokerage firm.

Clever shareholder lawyers are likely to try to paint some of those emails as evidence that Merrill knew these stocks were bad investments and yet their brokers were recommending them based on the analyst research report. But Merrill is likely to say that these emails were taken out of context.

You can't win a securities fraud case just by showing that you invested in a company and it lost a lot of money. You have to show that you relied on a statement that was made in connection with the purchase or sale of security, and the maker of the statement did so with knowledge of its falsity or was so reckless that they should have known what they were saying was false.

Merrill has said it doesn't believe the individual lawsuits merit class-action status. Would you agree with that?

Nathan Finch:

I haven't looked at the individual fact patterns giving rise to a class action. I know that Merrill will raise whatever defenses it has, including the appropriateness of class certification. I think they'll have a lot of defenses in a class action available to them, even if it is certified.

The better cases are going to be the individual shareholders who had a brokerage account with Merrill -- they may have a better chance of prevailing in claims against Merrill than in a class-action vehicle.

A lot of people say that the buck stops with the analyst and that he or she is ultimately responsible. Can investors consider suing the analysts directly?

Nathan Finch:

Generally, in order to state a claim in securities law, you have to show that someone is a direct violator of the law and that you lost money by relying on what they said, and that their statements remain in connection with the purchase or sale of securities.

People going on television and saying "I think XYZ stock is a good buy or sell candidate" -- cases in that arena where they're both making a forecast and they're not giving direct advice to a customer or client -- have generally not been successful.

Will this investigation make it easier for individuals to win other kinds of lawsuits against brokers, maybe suits claiming that brokers mishandled IPOs?

Nathan Finch:

Not specifically. I think the investigation allowed the world to see behind the curtain, and it may allow plaintiffs to persuade a judge or more likely an arbitrator to allow them to do a little bit more discovery

gathering and sharing of information than they otherwise would get.

They may be able to say to an arbitrator, "Look, we think there is evidence out there that shows that this company was intentionally giving bad advice," and point to Merrill's situation.

Whereas before this investigation I think it would be difficult to get that kind of discovery, now they may be more open to requests for those types of documents and information which may help individual investors bolster their own cases.