Al Parish, a former economics professor at the school who was known for loud sports coats and a Web site that depicted him in a superhero costume, pleaded guilty in October to federal charges of fraud and lying to investigators. The settlement between the investors and the university was approved Monday.
Court filings estimated 470 investors lost as much as $80 million. Investors sued the school, alleging the fraud happened while Mr. Parish worked there and that he used school offices and equipment while duping investors into believing his funds were trading profitably.
Approving the settlement prevents a "race to the courthouse" by investors filing claims against the school, "which is not in the best interest of any investor or other creditor," Chief U.S. District Judge David Norton wrote in court documents filed Monday.
The school would also waive its claim to about $1.5 million, or 18 percent of the $8.4 million it lost through its investments with Mr. Parish, said Rutledge Young, an attorney for the university. The agreement also means two civil lawsuits against the university will be dropped, Mr. Young said.
Most of the $3.9 million that the school has agreed to pay is covered under its insurance policy. An additional $160,000 will be paid out of cash reserves, according to the settlement. Attorneys have not said how much each investor will be paid.
An attorney who oversaw the agreement for both parties did not return a phone message Tuesday.
Mr. Parish claimed he had amnesia when authorities announced their investigation in April. He is set to be sentenced in June, and officials have recommended a minimum sentence of 30 years.