Federal regulators defended a proposed $1.4 billion settlement with Wall Street firms for alleged conflicts of interest.

In a memo filed Monday in Manhattan federal court in New York City, the Securities and Exchange Commission called its plan to distribute funds to former brokerage clients "fair, reasonable, adequate and in the public interest."

Under the proposed deal, announced in April, 10 firms will settle with the SEC, self-regulatory organizations and state regulators. The deal won't preclude future lawsuits by private parties.

Wall Street's so-called "global settlement" awaits final approval by the federal court.

U.S. District Court Judge William Pauley asked the SEC for more information on the deal, questioning whether it could be termed a final settlement when details on returning money to investors remain sketchy.

In its reply, the SEC said the deal is final because it resolved its issues with the Wall Street firms. While the deal doesn't specify which investors will receive restitution, the SEC said courts routinely approve final judgments that leave distribution of funds to a court-appointed administrator.

Under the SEC's proposal, within six months an administrator would propose a plan to repay brokerage clients who lost money on specific stocks recommended by firms covered by the settlement.

Bear Stearns & Co. (BSC), Credit Suisse First Boston Corp., Goldman Sachs Group Inc. (GS), J.P. Morgan Chase & Co. (JPM), Lehman Bros. Inc. (LEH), Merrill Lynch & Co. (MER), Morgan Stanley (MWD), Citigroup Inc.'s (C) Salomon Smith Barney unit, UBS Warburg LLC and US Bancorp.'s Piper Jaffray unit (USB) agreed to the deal, as did former analysts Jack Grubman and Henry Blodget.

The brokerage firms and former analysts aren't admitting or denying claims that they offered upbeat stock research to curry favor with investment-banking clients. Under the deal, the firms would provide five years of outside, independent research to clients, pay $80 million for investor education and hand over $399 million to the SEC, for distribution to investors.

Hundreds of thousands of eligible investors might get payments under the plan, the SEC said.

Court approval is required before any funds are distributed. The settlement calls for an administrator to identify investors and amounts they are due within nine months after the court signs off on a distribution plan.

Mutual funds may receive payments provided they meet all the eligibility requirements, the SEC said. Fund shareholders would not be paid directly, but may get indirect payment if the fund itself is paid, according to the SEC.

Derivative and option holders could get left out, as the SEC said the administrator may view stockholders as "more appropriate recipients of payments" since funds are limited and the settlement involves stock research only.

As for whether states will sign off on the deal, the SEC said 11 states have reached final settlements with the Wall Street firms, and many are preparing final paperwork to do the same.

No state is known to oppose the deal, the SEC added. It said rejection by one or more states would have no impact on the settlement, aside from lowering proposed payments to states.

On tax issues, the SEC said there will be no tax credits or deductions for any penalties paid by the firms. Tax treatment of other outlays will depend on tax laws, the agency said.

Regarding administrative questions, the SEC said it would not object if the court wants to preclude criminal-liability insurance for the administrator and reduce administrative court fees to 2% of income earned on the distribution and investor-education funds.

Additionally, the SEC agreed to place the funds with the Federal Reserve. A unit of J.P. Morgan Securities now manages court accounts and since J.P. Morgan is part of the settlement, the court wants settlement funds placed with another bank to avoid the appearance of any conflict of interest.

Court approval is required before any funds are distributed. The settlement calls for an administrator to identify investors and amounts they are due within nine months after the court signs off on a distribution plan.

Mutual funds may receive payments provided they meet all the eligibility requirements, the SEC said. Fund shareholders would not be paid directly, but may get indirect payment if the fund itself is paid, according to the SEC.

Derivative and option holders could get left out, as the SEC said the administrator may view stockholders as "more appropriate recipients of payments" since funds are limited and the settlement involves stock research only.

As for whether states will sign off on the deal, the SEC said 11 states have reached final settlements with the Wall Street firms, and many are preparing final paperwork to do the same.

No state is known to oppose the deal, the SEC added. It said rejection by one or more states would have no impact on the settlement, aside from lowering proposed payments to states.

On tax issues, the SEC said there will be no tax credits or deductions for any penalties paid by the firms. Tax treatment of other outlays will depend on tax laws, the agency said.

Regarding administrative questions, the SEC said it would not object if the court wants to preclude criminal-liability insurance for the administrator and reduce administrative court fees to 2% of income earned on the distribution and investor-education funds.

Additionally, the SEC agreed to place the funds with the Federal Reserve. A unit of J.P. Morgan Securities now manages court accounts and since J.P. Morgan is part of the settlement, the court wants settlement funds placed with another bank to avoid the appearance of any conflict of interest.