Arlington, Virginia-based investment firm Friedman, Billings, Ramsey & Co. (FBR) settled claims of insider trading and agreed to pay roughly $7.7 million to federal and industry watchdogs this week, according to the Associated Press.The agreement with the Securities and Exchange Commission and the National Association of Securities Dealers stems from claims that in 2001, the company improperly traded shares of CompuDyne, a security provider based in Annapolis, Md. FBR Founder Emanuel J. Friedman, who is also the company’s former chief executive and co-chairman will pay a separate $1.25 million civil fine and be barred from working in a subadvisory group for two years. He is still allowed to maintain his position and responsibilities at EJF Capital, a company he started in February. Former Chief Compliance Officer Nicholas Nichols will pay $110,000 and Scott Dreyer, former head trader, will pay $19,870.
The charges, first brought last April, drew industry-wide attention because FBR, a brokerage, was charged with insider trading. SEC Enforcement Director Linda Thomsen said in a statement that brokerages should be especially keen to protect the private information with which they are entrusted.
Regulators claimed that Nichols and Friedman flouted procedures for managing confidential information. Neither Nichols nor Friedman admitted or denied wrongdoing.
FBR is among the largest underwriters of public offerings in the United States.
The CompuDyne deal was an offering for private investment in a public company, through which mutual funds and hedge finds buy stock, known as a PIPE deal. FBR sold $29 million worth of CompuDyne to a hedge fund group in October of 2001, a deal which regulators said the company sold CompuDyne short in its own account.
The trade earned FBR $343,773 in profit. The company also charged CompuDyne $1.7 million for underwriting.
This week, Friedman noted that the deal was the first such PIPE transaction the firm had ever handled. “I did not intend to violate any regulations or rules,” he said. “I regret the shortcomings in our handling of this PIPE.”
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.