NEW YORK (CNN/Money) - New York State Attorney General Eliot Spitzer will not seek financial restitution from brokerage Merrill Lynch for alleged conflicts of interest in the firm's research department.

Spitzer currently is negotiating with Merrill (MER: Research, Estimates) about a possible settlement, after accusing the firm's analysts of privately disparaging stocks which publicly received high ratings because of Merrill's investment banking relationships with the companies.

Sources had told CNNfn that settlement terms would include Merrill Lynch paying restitution to the attorney general's office -- perhaps as much as $250 million.

But at the Crain's New York Business breakfast meeting Thursday morning, Spitzer said individual litigation would be the best way for investors who believed they were misled by Merrill to receive compensation.

"Restitution I have almost always believed is best handled through individual arbitration or litigation where individual investors, if they believe they have relied upon improper advice rendered by Merrill Lynch or anybody else, can file that claim," Spitzer told CNNfn. "That is the best forum for those issues to be resolved."

"Frankly, it was never practicable for the AG's office to receive a vast sum of money and then try to disperse that money to individual investors," Spitzer added. "Those individual investors will have to go through some sort of fact-finding process to demonstrate who relied on who and is owed how much."

On Wednesday the two sides again postponed the court date scheduling testimony for Merrill employees, which would move the case into the discover phase. The attorney general's office said the date was pushed to May 23 because "productive discussions" were continuing.