The nation's largest privately held ferry service will pay about $1.2 million to settle a lawsuit accusing it of defrauding the government after the Sept. 11 teNationrrorist attacks.

The settlement, announced Monday by federal prosecutors, calls for the Port Imperial Ferry Corp., which does business as New York Waterway, to pay the government about $16,000 a month for the next seven years.

The suit, filed last year, accused New York Waterway of overcharging the government for emergency ferry service after the 2001 attacks by exaggerating its costs for such things as payroll and fuel.

It also alleged New York Waterway claimed $8.4 million in losses from the terrorist attacks though the company's records showed that it turned a $5.6 million profit in 2001, $3 million higher than 2000.

The false claims caused the Department of Homeland Security to give New York Waterway $358,178 for losses it had not suffered, the government said.

In a statement, New York Waterway President Arthur E. Imperatore said the company conducted itself honestly during distressing times but decided to settle the lawsuit to avoid a costly court fight.

"It is regrettable that this service resulted in a billing dispute with the government," he said. "We strongly deny any and all allegations with respect to these billing issues."

Imperatore praised his employees and members of his family for working "feverishly and heroically" on Sept. 11 to rescue thousands of people from lower Manhattan and for creating a temporary transportation system in the months after the attacks.