Updated from 3:58 p.m. EST

Securities regulators, after weeks of tense negotiations, unveiled a tentative $1.4 billion deal Friday that punishes Wall Street firms for hyping stocks during the bull market and aims to prevent it from happening again.

A gaggle of state and federal regulators unveiled the details of the deal at an afternoon press conference at the New York Stock Exchange. The settlement will cost the brokerages around $900 million in fines. The firms also will pay $450 million for buying independent research for investors, and $85 million for a nationwide investor-education program.

(Despite the settlement, Wall Street's legal woes are far from over .)

Leading the charge at the press conference was New York Attorney General Eliot Spitzer, who made the credibility of Wall Street stock research a hot-button issue this year. In May, Spitzer negotiated a $100 million settlement with Merrill Lynch ( MER) over its publication of misleading research that touted the prospects of now worthless Internet stocks.

Spitzer and other regulators said the goal of the settlement, which won't become official until sometime next year, was to restore "integrity'' and "honesty" in Wall Street stock research.

"We want to restore the confidence of the American public in the marketplace," said Spitzer.

Friday's deal will put an end to a series of investigations of the investment banking division at 10 big securities firms. The various investigations have unearthed a mountain of documents showing that much of Wall Street's bullish stock touts during the latter 1990s were largely driven by a thirst for investment banking fees.

The biggest fines are being assessed against Citigroup ( C), which will pay $300 million, and Credit Suisse First Boston, which will pay $150 million. Citigroup is paying more than any other firm because its operates one of the biggest investment banks and retail brokerages on Wall Street, and it did more stock and bond underwriting for failed telecom companies than just about any other company.

Other firms will each pay $50 million in fines. These firms include Bear Stearns ( BSC), Deutsche Bank, Goldman Sachs ( GS), Lehman Brothers ( LEH), Morgan Stanley ( MWD), J.P. Morgan Chase ( JPM) and UBS Warburg.

Merrill Lynch's prior $100 million payment is included in the settlement.

Settlement Payments
Name of firm Retrospective relief
($ millions)
Independent research
($ millions)
Investor education
($ millions)
Bear Stearns & Co. LLC 50 25 5
Credit Suisse First Boston Corp. 150 50 0
Deutsche Bank 50 25 5
Goldman Sachs 50 50 10
J.P. Morgan Chase & Co. 50 25 5
Lehman Brothers, Inc. 50 25 5
Merrill Lynch & Co., Inc. 100* 75 25
Morgan Stanley 50 75 0
Salomon Smith Barney, Inc. 300 75 25
UBS Warburg LLC 50 25 5
TOTAL: 900 450 85
* Payment made in prior settlement of Research Analyst conflicts.

The $900 million in fines will be split between the Securities and Exchange Commission and the state regulators, with some of the proceeds going into an investor restitution fund.

The $450 million the firms are paying for independent research will go into an escrow account that the firms will be ordered to tap into to provide their customers with at least three alternative stock reports when recommending a stock. The firms will be free to buy the reports from any independent research shop that doesn't do investment banking work.

Regulators also are enacting new rules that will put additional curbs on contacts between investment bankers and analysts. Analysts will no longer be able to join investment banker on "road shows'' for initial public offerings, nor help their firms recruit potential IPO candidates.

The settlement would forbid firms from engaging in a controversial practice known as "spinning," a process in which Wall Street firms to allocate shares in hot initial public offerings to corporate executives of companies that do investment banking business with them.

Some Wall Street critics have likened to spinning as a form of bribery. The practice got a big black eye this summer after it was revealed that Citigroup's Salomon Smith Barney investment banking division had dole out shares in hot IPOs to a slew of telecom executives in the 1990s.

Another reform would require securities firms to begin tracking the performance of their analysts in picking stocks and periodically provide that information to investors. Regulators said they want investors to be able to determine, which analysts get it right and which analyst don't.

But the regulators have a lot more work ahead of them. The deal won't become final until formal settlement agreements are filed against each firm with a federal court in Washington, D.C. And several people said that could take a few months.

The filing of the settlements will be critical because it will include a detailed "statement of facts'' outlining the basis for the fines and the alleged wrongdoing by each firm. By filing them with a court, regulators say they will be able to ask a judge to hold a firm in contempt if they fail to comply with the agreement.

In some instance, the court filings will include many of the internal email messages that regulators obtained from the firms and were the basis for the sanctions.

Email messages showing that Merrill Lynch analysts harbored private doubts about the stocks they were recommending proved to be that firm's undoing. Email messages also have proved damaging in Spitzer's investigation of Citigroup and Jack Grubman, the bank's former telecom analyst.

Sources say Spitzer, meanwhile, is trying to negotiate a deal with Grubman, which would have the former star analyst pay a multi-million dollar fine and be barred from the securities business.

While regulators hailed the proposed deal as a chance for Wall Street to regain investor confidence, some are saying it neither goes for enough or might do more harm than good.

Jacob Zamansky, a New York securities lawyer who brought one of the first arbitration cases against a Wall Street analyst, said that as long as analysts and investment bankers work for the same firm, the stock reports those firms churn-out will be biased. He said the best thing the investigations have done is to alert investors to the fact that "Wall Street research can't be trusted."

Others contend that regulators are doing a disservice to investors by giving them the impression that they can now compete with institutional investors because the research being produced by Wall Street will be more objective.

"I think this is much ado about nothing. Small investors will never get high-quality research," said Marcel Kahan, a securities professor at New York University School of Law. "That's because you get what you pay for and small investors are not willing to pay for high-quality research."

Even some independent research providers are less than ecstatic with the deal, saying most of the $450 million targeted at buying alternative research reports will probably end up going to just a handful of firms.

Richard Prati, chief executive of AmTech Research, an independent research firm that specializes in covering technology companies, predicts the Wall Street will turn to big research outfits, such as ValuLine, Moody's Investors Service and Standard & Poor's, to buy independent research. He doubts Wall Street will choose to provide their brokerage customers with research produced by specialized boutiques.

But Christine Bruenn, president of the North American Securities Administrators Association, said regulators could do some fine-tuning of the research requirement in the future. That's one reason why the plan to provide investors with alternate research reports initially will only be in effect for five years.