NEW YORK (CNN/Money) - A $1.5 billion agreement to settle charges that Wall Street firms misled investors by over-hyping stocks faces objections from at least one state.

New Jersey is threatening to pull out of the Wall Street analyst conflict of interest settlement, CNNfn has learned. But contrary to an earlier report, Massachusetts is on board.

The settlement agreement, announced late in December, would require 12 firms -- including Citigroup (C: Research, Estimates) unit Salomon Smith Barney, Credit Suisse First Boston and Merrill Lynch (MER: Research, Estimates) -- to pay multimillion-dollar fines totaling about $1.5 billion and separate their stock research from their investment banking business.

The firms, accused of using upbeat stock research during the 1990s bull market to lure investment banking business, have neither admitted nor denied charges of duping investors.

Since the deal was announced Dec. 20, state and federal regulators, led by New York State Attorney General Eliot Spitzer, have been trying to hammer out the terms of the final settlement. Investment firms have been fighting to tone down language in the final document in an effort to limit their liability to lawsuits from investors.

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But a spokesperson for New Jersey's acting attorney general said the state is "sending a strong message. It's not going to be a free ride [for investment firms]. There are other options," meaning individual states can still choose to sue investment firms.

In addition to New Jersey, USA Today reported that Massachusetts was close to scrapping the deal, saying it's meeting resistance from banks over the final wording of the agreement.

Matt Nestor, director of the Securities Division in Massachusetts, told CNNfn, "We remain committed to working with all other states and federal regulators to resolving all outstanding analyst cases. I'm confident that we will achieve a settlement that ultimately resolves all open cases."

The protracted talks come during a tough time for the securities business, which has cut tens of thousands of jobs to save money. U.S. stocks fell for a third straight year in 2002 and the business of investment banking, money management and trading has slowed.

"Of course there is tough negotiating going on. We're lawyers. We argue about words," said a source close to the talks. The source said the states don't want to be seen as driving a different settlement than the federal government. "I think we're going to get to a place where we need to be so an agreement can be reached," the source added.

The other firms settling are Morgan Stanley (MWD: Research, Estimates), Goldman Sachs (GS: Research, Estimates), J.P. Morgan Chase (JPM: Research, Estimates), Lehman Brothers (LEH: Research, Estimates), Bear Stearns (BSC: Research, Estimates), Deutsche Bank and UBS Warburg. Thomas Weisel Partners and Piper Jaffray also agreed to a deal.