Massachusetts regulators have accused Merrill Lynch of co-opting "supposedly independent" research analysts to help them dump collapsing auction-rate securities on unsuspecting customers, according to media reports.

The state's civil-fraud complaint against Merrill Lynch is part of a widening crackdown on Wall Street sellers of the debt instruments. Customers have been unable to sell the investments, which plunged in value. Auction-rate securities - issued by municipalities, student-loan companies, charitable organisations and others - are long-term securities engineered to have short-term features. Their interest rates reset at weekly or monthly auctions run by financial firms.

Emails uncovered by the Massachusetts Securities Division echo those unearthed at the height of the frenzy over Internet stocks, according to the Wall Street Journal.

The auction-rate problem has revived concerns that analysts' work can still be manipulated to boost sales.

"We've seen a corruption of research," says Massachusetts Secretary of the Commonwealth William Galvin, who oversees the state securities division. "This is an issue that many of us on the enforcement side have seen years ago, and it's the same pattern."

The state wants Merrill to repay customers who sold auction-rate securities at a loss and to make whole those who can't sell them at all. The state is also seeking a fine and formal censure of the firm.

The company said the regulatory reforms over investment research covered equity analysts and investment bankers and nothing prohibits communications between sales executives and bond analysts.

Merrill is now the second big firm to face charges. New York and Massachusetts authorities have already filed suits against Swiss banking and securities giant UBS, the Swiss bank, and other firms face government investigations or actions from private investors.