Did you read this? We all know this crap goes on, but I am glad someone finally got caught - and I hope this is one of the reasons why Rodman has decided to cease operations. Hopefully, Joe Pantginis is next on the FINRA watchlist:
Rodman & Renshaw, an investment bank that sponsored numerous Chinese companies in the United States market, was fined $315,000 on Wednesday by Finra, the financial markets’ private regulator, for repeated violations of rules about the use of analysts to seek investment banking business.
The company’s former chief compliance officer and two former analysts were fined and suspended from the securities industry.
According to the Finra complaint, which the defendants accepted without admitting or denying the accusations, one analyst said there was no point to writing research unless a company would pay her to do it. Another analyst ignored rules that barred analysts from soliciting underwriting business for the firm.
“Some of these people think that research is for free,” one of the analysts, Alka Singh, wrote in an e-mail to a former colleague, according to Finra, the Financial Industry Regulatory Authority.
The complaint said Ms. Singh was upset that a Canadian mineral exploration company that was not otherwise identified had raised $25 million in a July 2010 private placement in which Rodman did not participate despite the fact she had recommended the stock the previous month.
In an e-mail to the chief executive of that company after the offering, she solicited a payment, saying that if the company was not willing to use Rodman as an underwriter, it could pay a consulting fee to her, “so that the analyst can at least get something for their effort.”
Finra said Ms. Singh had violated Finra rules by requesting the payment, which the company did not provide.
The other analyst, Lewis Boreas Fan, was sanctioned for trying to arrange investment banking business from Chinese companies he covered. Rodman ended up obtaining business from one of them and was the sole underwriter of a $10 million offering that proved to be a poor investment for Rodman’s customers.
In an e-mail to the director of research and the chief executive, Mr. Fan described his efforts, using what Finra said were “code words” because “he knew that as a research analyst it was improper for him to participate in efforts to solicit investment banking business.”
“I have just reached out to the management,” Mr. Fan wrote. “Here is where things stand. As of right now, they want to divide their love into two: 10 dollars of popcorn for us and 10 dollars of soda for the other guy, on two separate movie dates. But the other guy is providing much better accommodation to them than we are.”
Mr. Fan indicated that the company’s chief executive was upset that Rodman was “imposing much stricter criteria to them” than it had to another company, and that if Rodman wanted to win the business, “we’ve got to sweeten the pot, as the other guy is really showing them a lot of love.”
The Finra complaint did not explain exactly what the e-mail meant, nor did it identify the company, which it said was “a China-based manufacturer of mineral-based heat-resistant products.” But it gave enough details to indicate the company was China GengSheng Minerals, which was traded on Amex.
That stock had an amazing run during the final week of 2010, rising from $1.69 a share on Dec. 27 to end the year at $5.15. The exchange asked the company what was going on, and it replied that its policy was not to comment on unusual market activity.
In the first week of the new year, Rodman was the sole underwriter of an offering that would have been a great bargain if that $5.15 price were a reasonable estimate of the company’s value. For $4, the investor could buy one share and 0.4 warrants. A full warrant entitled the holder to buy another share at $4, beginning in July 2011.
The share price soon collapsed, however. In afternoon trading Wednesday, the shares were up 5 cents, to 42 cents.
China GengSheng investors have done better, however, than investors in Rodman, which traded as high as $6.66 in 2009 as the company gained Chinese business. While it was going strong, Rodman sponsored conferences for investors in Shanghai and New York, advertising speakers like Henry M. Paulson Jr., a former Treasury secretary; Christopher J. Dodd, a former senator; and former Vice President Dick Cheney.
But in 2011, Rodman announced it would no longer do business with Chinese companies, and it now faces several lawsuits related to its underwritings from investors who contend they were misled. This spring the parent company changed its name from Rodman & Renshaw Capital Group to the Direct Markets Holding Corporation. Its shares traded Wednesday at 13 cents, down a penny. The investment bank subsidiary retained the Rodman name.
In addition to the $315,000 fine, Rodman & Renshaw agreed to appoint a consultant to assure the firm complied with Finra rules in the future. William A. Iommi Sr., a former chief compliance officer, was suspended for 90 days and fined $15,000. The two analysts were fined $10,000 each. Ms. Singh was suspended for six months and Mr. Fan for 30 days.
Jay Auslander, a lawyer representing Rodman and Mr. Iommi, said, “They are pleased they were able to resolve this matter with Finra and are looking forward to moving on.” A lawyer for the analysts declined to comment.
This article has been revised to reflect the following correction:
Correction: August 25, 2012
An article on Thursday about penalties against the investment bank Rodman & Renshaw and some of its employees for violations of securities rules misidentified one recipient of a memo from Lewis Boreas Fan, an analyst at the bank, regarding his efforts to secure investment banking business. Besides the director of research, the memo was also sent to the firm’s chief executive, but not to William A. Iommi Sr., the chief compliance officer.
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