CORRECTED - SEC sues 3 Canada residents over tips via Merrill

* Defendants alleged tipped by husband of Merrill employee

* One defendant settles

* SEC seeks return of illegal gains, and civil fines (Corrects currency translation in first paragraph)

By Jonathan Stempel

NEW YORK, June 10 (Reuters) - Three Ontario residents were sued by the U.S. Securities and Exchange Commission for allegedly reaping $1.02 million (C$1.13 million) of illegal trading profits by using inside information on transactions involving Merrill Lynch & Co clients.

Two defendants, Phillip Macdonald and Martin Gollan, were accused of investing in securities of companies that were the targets of mergers and acquisitions, based on tips from the third defendant, Michael Goodman.

The SEC said Goodman has settled without admitting wrongdoing, and will not pay a civil penalty. Gollan did not immediately return a call to his home. Macdonald could not immediately be reached.

In a civil lawsuit filed in Manhattan federal court, the SEC said Goodman learned about possible transactions from his wife, who worked between January and June 2005 as an assistant to managing directors at Merrill Lynch Canada Inc in Toronto.

"Goodman and his wife sometimes discussed what was happening at her job," the SEC said. "Goodman's wife expected that her husband would keep this information confidential."