The National Association of Securities Dealers says brokerage firm Friedman, Billings, Ramsey & Co., Inc. has agreed to pay more than US$7.7 million to the NASD and the U.S. Securities and Exchange Commission to resolve allegations of improper trading.

The regulator said the settlement resolves charges arising from FBR’s improper trading in shares of Compudyne Corp., in a PIPE (Private Investment in a Public Equity) deal it structured and managed for the Maryland-based security firm. The action announced today is the fourth enforcement action NASD has taken arising from the Compudyne PIPE deal.

The NASD imposed a fine of US$4 million on FBR. In a separate settlement with the SEC, FBR agreed to pay more than US$3.7 million in civil penalties, disgorgement and interest. FBR also agreed to hire an independent consultant acceptable to NASD and the SEC to review its procedures for safeguarding material, nonpublic information.

FBR’s former chairman, Emanuel Friedman, and its former chief compliance officer, Nicholas Nichols, also entered into settlement agreements with NASD and the SEC. The NASD fined Friedman US$500,000 and suspended him from acting in a supervisory capacity with any NASD-registered firm for two years. Friedman will pay a civil penalty of more than US$750,000 to the SEC. Nichols will pay a US$50,000 fine to NASD and a civil penalty of US$60,000 to the SEC.

In settling this matter with NASD, FBR, Friedman, and Nichols neither admitted nor denied the charges, but consented to the entry of NASD’s findings. In the SEC proceeding, FBR, Friedman, and Nichols consented to the entry of a final judgment by the U.S. District Court, and FBR and Friedman consented to an SEC administrative order, without admitting or denying the allegations in the SEC’s complaint.

“This settlement furthers NASD’s efforts to prevent and deter abuses in the rapidly-growing market for PIPEs,” said Cameron Funkhouser, senior vice president of NASD’s Department of Market Regulation.

The NASD found that in September 2001, Compudyne Corporation and FBR, its placement agent, offered accredited investors – on a confidential basis – a PIPE deal proposing to sell 2.45 million shares of common stock, which raised more than US$29 million. The restricted stock was offered at the below-market price of US$12 per share. NASD found that FBR failed to maintain an information barrier to prevent trading by FBR personnel who were aware of this information.

The NASD also found that FBR failed to enforce its written supervisory procedures designed to protect confidential information, failed properly to locate stock to borrow in order to sell Compudyne shares short, and misinformed the NASD about the departure from the firm of a broker involved in selling the Compudyne PIPE.

The NASD has brought three previous enforcement actions arising from the Compudyne PIPE deal.