UPDATE 1-US Treasury to get leftover Wall St settlement cash

* U.S. federal judge orders remaining money to Treasury

* Funds leftover after settlement over alleged conflicts

* About $65 million expected to go to government coffers
(Adds SEC comment in paragraphs 6-7)

By Martha Graybow

NEW YORK, June 10 (Reuters) - A U.S. judge has ordered that
millions of dollars in leftover money from the landmark 2003
Wall Street stock analysts' settlement go to the coffers of the
U.S. government, because regulators and the banks have not
found an adequate way to distribute it to investors.

U.S. District Judge William Pauley in Manhattan said in a
written ruling that more than $79 million intended to
compensate victimized investors cannot be distributed and is
accruing interest.

He said he had little choice but to transfer whatever is
left, after an additional $13.8 million in remedial payments is
transferred to investors plus costs and fees, to the U.S.
Treasury Department for the government's general use.

The judge said there was no clear framework set out by the
U.S. Securities and Exchange Commission for distributing funds
from the $1.5 billion settlement, which ended an embarrassing
scandal on Wall Street.

He said the parties left it up to the court to sort out,
and that money was remaining after a lengthy claims process for
aggrieved investors. In addition to money going to investors,
other funds went to finance independent research efforts,
investor education and other uses.

"The quandary of what to do with undisbursable funds
presents cautionary lessons for regulators, courts and all
other participants in securities fraud litigation," Pauley
wrote.

SEC spokesman John Nester said the settlement has already
resulted in more than $378 million being returned to investors
and that the agency was pleased that the judge's order provides
for $13.8 million more to be distributed to investors.

"We agree with the court that the remaining $65 million
should, as is typical in enforcement actions, go to the Treasury
for the public's benefit," he said.

The 2003 settlement came after regulators accused brokerage
firm stock analysts of publishing slanted research to drum up
lucrative investment banking business during the 1990s
technology stock boom.

Prompted in part by abuses revealed by then-New York
Attorney General Eliot Spitzer, 10 Wall Street titans including
Citigroup Inc (C.N), Goldman Sachs (GS.N) and Bear Stearns, now
part of JPMorgan Chase & Co (JPM.N), agreed to the settlement.

Two former star analysts -- Henry Blodget, formerly of
Merrill Lynch, and Jack Grubman, formerly of Citigroup's
Salomon Smith Barney -- also were part of the settlement.

The settlement involved the SEC, brokerages regulator NASD,
which has now been replaced by the Financial Industry
Regulatory Authority (FINRA), the New York Stock Exchange and
several states.

Pauley said that even the seemingly easy task of
identifying which stocks were involved in the alleged
misconduct -- necessary to identify which customers would be
entitled to settlement funds -- turned into a "kabuki dance"
between the SEC and the investment banks.

In his ruling, Pauley rejected arguments by the banks to
use the remaining money to fund potential settlements in
related investor litigation over allegations of conflicted
research. He also rejected an SEC proposal to distribute the
remaining money among the U.S. Treasury and other regulators
that brought the case.
(Reporting by Martha Graybow; editing by Steve Orlofsky and
Matthew Lewis)