The state's public worker pension fund has settled a federal securities fraud lawsuit against Merrill Lynch & Co. and two former company officials for $4.25 million.

The New York State Common Retirement Fund had opted out of a similar class action suit and negotiated the settlement with Bank of America, which bought Merrill Lynch in 2008.

"The Fund was misled about the extent of Merrill Lynch's participation in the subprime mortgage fiasco; that is unacceptable," said state Comptroller Thomas DiNapoli, the fund's sole trustee.

DiNapoli, a Democrat, said Thursday he was confident the settlement "makes up for a large part of the fund's losses" from Merrill Lynch.

Bank of America spokesman Bill Halldin confirmed the settlement but declined to comment further.

The suit claimed the now-$133 billion fund lost money because of Merrill Lynch's role in the mortgage-backed securities market, saying it was deliberately covered up and artificially inflated the company's stock value. That value plummeted when the exposure became known publicly.

The settled lawsuit also had named E. Stanley O'Neal and Jeffrey N. Edwards, the company's former chief executive and chief financial officers.

The fund has more than 1 million members, employees and retirees from state and local governments. Its value dropped from its historic high of about $154 billion in spring 2008 to $110 billion a year later as the economy stopped growing and the stock market tumbled, in part from losses in mortgage-backed securities.