Investment bank and financial services firm Merrill Lynch will pay the Bay State $300,000 in fees, fines and costs for the allegedly illegal sale of auction rate securities to the city of Springfield, according to the Attorney General Martha Coakley’s Office.

The payment stems from an investigation conducted by the attorney general’s office during late 2007 and 2008 which investigated whether certain Merrill representatives misled Springfield into investing in funds the company knew, or should have known, were impermissible under Massachusetts state law. Under state law, cities and towns cannot invest their short-term cash funds into this type of security.

The attorney general’s office said it investigated whether Merrill representatives omitted material information, and/or otherwise misled Springfield officials, regarding the nature of the investment. As a result of that investigation, Merrill repaid nearly $14 million to the city of Springfield.

"We are pleased with Merrill’s cooperation in this investigation," said Coakley. "Our primary interest was to promptly return the lost funds to the city of Springfield.  However, another important goal was to find a way to prevent this from happening to towns and cities in the future. The additional funds for town and city treasurer education and guidance will assist us in reaching this goal." 

Merrill repaid Springfield in January 2008. The $300,000 payment, which is memorialized in an Assurance of Discontinuance filed earlier this week in Suffolk Superior Court, includes $225,000 for fees and investigative costs, as well as $75,000 to educate and train town treasurers and other municipal financial officials on investment management practices and to review Massachusetts entities’ investments to determine their appropriateness, Coakley said in a statement.