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Ex-Friedman Billings CEO Faces Civil Charges

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bartermania   Saturday, 05/28/05 11:12:47 AM
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Ex-Friedman Billings CEO Faces Civil Charges

By Matthew Goldstein
Senior Writer
5/25/2005 2:22 PM EDT
Click here for more stories by Matthew Goldstein

Wall Street banker Emanuel Friedman could be charged with "aiding and abetting" insider trading in a 2001 private stock placement that was handled by Friedman Billings Ramsey (FBR:NYSE - commentary - research), the investment firm he co-founded, a brokerage document shows.

Friedman learned of the potential civil charges on April 28, a day after he resigned as co-chairman and co-chief executive of FBR. Regulators from the Securities and Exchange Commission and the NASD both served Friedman with a so-called Wells notice, according to a recently updated copy of his brokerage registration statement.

A Wells notice is a preliminary determination by regulators that an investigation warrants the filing of civil charges.

The potential charges against Friedman stem from a 2001 private placement FBR managed for Compudyne (CDCYE:Nasdaq - commentary - research), a small Maryland security-systems manufacturer. The $12 million Compudyne stock sale has become a major headache for FBR, leading not only to Friedman's sudden resignation but the resignations of the firm's top trader and its compliance officer.

The Arlington, Va.-based firm previously has said it's involved in settlement talks with the SEC and NASD over allegations that it, too, violated insider trading rules involving shares of Compudyne. The firm proposed paying $7.5 million in fines and restitution for misusing confidential information about the Compudyne deal, which was a type of financing known on Wall Street known as private investment in public equity, or PIPE. Friedman also offered to hire a consultant to review its procedures for separating its brokerage arm from its investment banking division.

The regulators have yet to say whether they will accept the terms of the firm's proposed settlement.

Last week, former hedge fund manager Hilary Shane agreed to pay $1.45 million in fines and restitution after being charged by securities regulators with fraud and insider trading in the same PIPE deal. The settlement with Shane is the first one to emerge from a yearlong investigation into stock manipulation in the $14 billion market for PIPEs, which are used mainly by small, cash-strapped companies.


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