Ten Wall Street brokerages, including Credit Suisse First Boston, have agreed to pay around $1.4 billion (SFr1.99 billion) and accept new rules of conduct to settle charges that they issued biased stock research.
New York regulators announced the fines on Friday, unveiling a long-awaited settlement.
Credit Suisse First Boston (CSFB), the investment arm of Credit Suisse, Switzerland's second-biggest bank, and nine other brokerages said they would more clearly separate research analysts from bankers working on underwriting deals.
They also agreed to pay $900 million in relief for investors, $450 million to fund independent research and $85 million for investor education.
The practice of "spinning" - or giving shares of promising initial public offerings to favoured clients - will be banned.
In addition, stock analysts will be shut out from investment roadshows and deal pitches, or meetings where brokers recommend deals to potential clients.
Honest investment advice
"This agreement will permanently change the way Wall Street operates," said New York attorney-general Eliot Spitzer, who led regulators in the settlement talks.
"Every investor knows that the market involves risk," added Spitzer. "Nobody expects a guaranteed profit. But what every investor expects and deserves is honest investment advice - advice and analysis that is untainted by conflicts of interest."
The attorney-general and the SEC began investigating brokerages following the decline of the energy giant, Enron.
Revelations surfaced that small investors lost millions of dollars after they were advised to buy stocks that analysts privately derided, in order to bolster the stocks' value.
The two sides had been meeting for months, with talks intensifying in a series of meetings in New York over the last two weeks with representatives for Spitzer and the enforcement director of the SEC.
CSFB under pressure
Under the settlement, CSFB will pay at least $150 million. The latest payout comes just a few days after Britain's Financial Services Authority fined the investment bank $6.4 million for concealing information about its Japanese derivatives business.
CSFB also posted a net loss of $425 million during the third quarter, and 6,000 jobs with the firm have been cut since July 2001.
The payments are a drop in the ocean, however, for most of the companies. Citigroup, for example, averaged about $65 million in profit each business day in the third quarter, meaning one good week would cover its fine.
The accord comes about seven months after another brokerage, Merrill Lynch, agreed to pay $100 million to settle Spitzer's allegations that its analysts misled investors by issuing biased research reports.
Since Merrill's settlement, other brokerages have faced a barrage of disclosures about conflicts of interest between research and investment banking in their own firms.
Even with the settlement, the companies could face another problem - costly lawsuits from shareholders charging that the brokerages slanted research to please corporations and win investment banking business for their firms.
Spitzer and other state regulators are expected to publish their findings, according to New York and Massachusetts officials. These details could be used as ammunition in investor lawsuits against the firms.
swissinfo with agencies