Friedman Billings Co-CEO Retires Amid SEC Probe

Updated from April 4

In a surprise move, Friedman Billings Ramsey(FBR Quote) announced that Emanuel Friedman will retire in June as co-chairman and co-chief executive of the investment firm he founded.

The Virginia-based company offered no specific reason for Friedman's retirement, which will be effective June 9. Friedman, 58, co-founded the firm, which specializes in real estate investment banking, in 1989 along with Eric Billings and Russell Ramsey.

In heavy trading on Tuesday, the firm's stock was down $1.41, or 9.1%, to $14.12.

Friedman's retirement comes as securities regulators are investigating the firm's role as placement agent in a 2001 privately negotiated $12 million stock sale by Compudyne(CDCY Quote), a Maryland security company. Last November, the firm disclosed that the Securities and Exchange Commission and the NASD were both investigating the firm's role in finding hedge funds to invest in the deal, which was a kind of financing known on Wall Street as private investment in public equity, or PIPE.

People familiar with the investigation say the regulators are looking into allegations of improper trading in Compudyne shares by some of Friedman Billings' proprietary hedge funds, some of which are managed personally by Friedman and other top officials with the firm.

Bill Dixon, a Friedman Billings spokesman, said he "could not characterize" the reasons for Friedman's retirement, beyond what's stated in the press release announcing his departure.

In the release, Billings said, "All of us at FBR owe Manny a tremendous debt of gratitude. We wish him the very best in his future endeavors."

The investigation of Friedman Billings is part of a broad inquiry by securities regulators into manipulative trading in the $14 billion-a-year PIPEs market. A year ago, the SEC issued subpoenas and requests for documents to 20 brokerages that have arranged PIPE deals for cash-strapped companies. Regulators subsequently issued subpoenas to about 10 hedge funds. The SEC is working in tandem with a parallel inquiry by the NASD.