Wall Street firms are facing fines of at least $1bn (£640m) for misleading investors with biased research during the dotcom boom.
The major financial companies, which include Citigroup, Goldman Sachs, Morgan Stanley and Credit Suisse First Boston, were thought to be locked in final negotiations with investigators from the regulatory bodies last night.
Sources close to the talks hope a settlement will be reached early next week following a range of investigations led by Eliot Spitzer, the New York attorney general, as well as the securities and exchange commission, the New York stock exchange and the national association of securities dealers.
Wall Street firms face accusations that the upbeat advice given by their analysts to encourage investors to buy shares during the dotcom boom did not reflect their true opinion.
The accusation is that the analysts inflated their recommendations on shares so that their investment banking employers could earn lucrative business from the companies whose shares were being touted.
Merrill Lynch, whose analyst Henry Blodget was one of the best-known bulls of the dotcom boom, has already agreed a settlement with Mr Spitzer that required it to separate its research division from its investment bank. It also paid a $100m fine.
According to the Wall Street Journal, the fines now under discussion would hit Citigroup hardest with a settlement in the region of $500m.
Citigroup's investment banking arm, Salomon Smith Barney, has been the subject of attention because of the views expressed by its telecoms analyst Jack Grubman.
The Wall Street Journal also disclosed that CSFB would be fined $200m with other firms such as Deutsche Bank, UBS and Lehman possibly facing fines of about $75m each.
Morgan Stanley denied other reports in the US yesterday that it had failed to properly maintain internal email records sought by regulators as part of the investigation.
"We have produced close to 400,000 pages of documents, including more than 200,000 pages of emails and email attachments," Morgan Stanley said in a statement.
"Any focus on email production at this late date is a complement red herring," it added.
During the investigations, the contents of emails from other firms have been made public and appear to show analysts questioning the quality of their own advice.
In some of the emails that have been made public, largely by Mr Spitzer's office, Mr Blodget is portrayed in an embarrassing light. He is said to have described internet company 24/7 Media as "a piece of shit" in an internal email despite having the stock on an "accumulate" rating.
Mr Spitzer's office was not immediately available for comment.
