Merrill Lynch, Pierce, Fenner & Smith Inc., the nation's biggest stock brokerage, has agreed to repay up to $1.6 million to customers who bought stock in a high-flying computer company that subsequently went bankrupt.

The Securities and Exchange Commission said yesterday that Merrill Lynch, in its recommendation and sale of the stock of Scientific Control Corp. between Mar. 1, 1968, and Nov. 21, 1969, "willfully villated the anti-fraud provisions" of the federal securities law.

Merrill Lynch, without admitting or denying the SEC allegations, settled the case after hearings over the course of more than two years ending in June 1976, during which testimony from more than 300 witnesses was heard by an administrative law judge.

The SEC penalized seven Merrill Lynch account and research extcutives and censured 22 others. Charges were dismissed against 19 other Merrill Lynch employees named in the original complaint.

In New York, the brokerage firm issued a statement saying, "We believe the accord we reached with the SEC brings toa close this prolonged and costly proceeding."

It is the second major case involving a securities violation by Merrill Lynch in less than two years. In the earlier action, the SEC named Merrill Lynch in connection with the sale and underwriting of stock in Stirling Homex Corp., the Rochester, N.Y. modular housing producer that collapsed after disclosures of criminal fraud by the management.

In the Scientific Controls Corp. case. Merrill Lynch sold the stock, but was not an underwriter, the SEC said.

Scientific's first offering of 440,000 shares in December 1967 was priced at $7.50 a share, the SEC said. On June 4, 1968. Scientific reached its high of $70 a share, the SEC said, and during this period money of the company insider sold their stock. By Nov. 21, 1969, the price had dropped to $13.

The SEC said that the company was barely profitable in only one quarter of its existence. Yet the company regularly made predictions of product discoveries and improved profits.

According to the report, Merrill Lynch readily accepted the information provided by Scientific's management, much of which was "either overly optimistic or simply untrue."

The information was passed along to custmers by the firm's research departments through its account executives.

For example, Merrill Lynch's "wire flash" to offices in June 1969, said that Scientific "has developed engineered and is producing five new products." But the SEC found that three of the computers referred to were not in production and a fourth was never fully developed.

Merrill Lynch regularly rated Scientific's stock as "buy/hold" and described it as a "speculative" investment for customers looking for "growth," the SEC said.

Then, on Nov. 10, 1969, the brokerage firm changed its rating on Scientific to "no opinion," the SEC said, "leaving its customers without guidance."

The DEC said that at this time "Merrill Lynch held approximately 27 per cent of the outstanding shares of Scientific on behalf of its customers."

A short time later, the SEC said, "Scientific filed a petition for an arrangement under Chapter XI of the Bankruptcy Act."

The SEC settlement made public yesterday does not mention of any action is contemplated against officials of Scientific Controls. A spokesman at the New York office, where the case was brought, refused to comment.