Cuomo, in an interview with The Associated Press, said talks with the nation's biggest brokerage are at an impasse. He said the suit would be filed Friday.
A spokesman for Merrill Lynch declined to comment.
Five major banks including Citigroup Inc. and Switzerland's UBS AG have agreed to $42 billion in settlements with Cuomo and other regulators that require the companies to buy back the securities. The investigations concern how brokerages sold auction-rate securities before the $330 billion market collapsed in February.