Sep. 1--Florida financial regulators and Merrill Lynch closed the terms of a deal Tuesday in which the brokerage giant will pay an $8.5 million fine to settle allegations its advisers misled investors about the safety of auction rate securities.

The agreement was part of a $125 million settlement that resolved a multi-state probe into suspect auction-rate securities sales tactics by Merrill, which is now owned by Bank of America Corp.

Securities regulators say Merrill brokers told investors that auction rate securities were virtually as safe as cash. In February 2008, however, the market for such debt securities collapsed, leaving investors stuck with devalued, illiquid investments.

The Florida Office of Financial Regulation said negotiations with Merrill had also resulted in "a substantial amount of money" being refunded to investors who bought auction rate securities.

Florida collaborated with the North American Securities Administrators Association (NASAA) multi-state task force in coordinated investigations into the activities of Merrill Lynch regarding their sales practices. The fine represents Florida's pro-rata share of a $125 million national settlement effectuated by the NASAA multi-state task force and the lead state, the Commonwealth of Massachusetts.

Other brokerage players have also been subject of regulatory action. Last month, New York regulators sued Charles Schwab Corp., bringing similar claims against its brokerage unit.

In July, TD Ameritrade Inc. agreed to repurchase $456 million in auction-rate securities from investors as part of a settlement with the New York Attorney General's Office. The firm also agreed to re-purchase all auction-rate securities it sold before Feb. 13, 2008.

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