Wall Street brokerage Merrill Lynch is facing fresh legal action from aggrieved investors who lost money on one of its internet stock tips.

A lawsuit filed on Wednesday on behalf of investors in bankrupt online toy shop EToys accuses Merrill Lynch of fraud.

It claims that the brokerage giant deliberately issued "false and misleading analyst reports" on internet stocks in breach of US stock market regulations.

The latest lawsuit comes less than two months after Merrill paid $100m to settle an investigation by New York state prosecutors into allegations its analysts misled tech stock investors.

Conflict of interest

Under the settlement, Merrill did not admit to any wrongdoing.

But the firm agreed to put up firewalls between its investment banking and research departments in order to guarantee its analysts' independence.

The New York prosecutors' investigation was prompted by allegations that the firm's analysts issued glowing reports on firms that they privately disparaged so as to keep open the possibility of gaining lucrative investment banking business from them.

The EToys lawsuit cites that investigation, led by New York attorney general Elliot Spitzer.

Shares in EToys peaked at $90 shortly after its stock market listing in 1999, but fell heavily when the internet bubble burst one year later.

The company filed for bankruptcy last year.