Ex-Hedge Fund Chief Settles Short-Sale Charges for $1.45 Million

Shane, who has a doctorate in finance from the Wharton School, declined to comment. Her attorney, Perrie Weiner, could not be reached for comment.

The regulatory action against Shane is just the first of several enforcement actions to arise from the Compudyne PIPE.

Friedman Billings Ramsey(FBR), the placement agent for the transaction, is involved in settlement talks with the SEC and NASD over allegations that it too violated insider trading rules. The Virginia-based investment firm has proposed paying $7.5 million in fines and restitution for misusing confidential information about the Compudyne PIPE to make trades.

The scandal involving FBR reaches to the highest levels of the investment firm and led to the sudden resignation last month of Emanuel Friedman as co-chief executive officer of the firm he co-founded. FBR has said that Friedman and two other former top executives are also involved in settlement talks with regulators.

The other two executives, Scott Dreyer, head of trading at the firm, and Nicholas Nichols, FBR's compliance officer, also have both left. Dreyer is the brother-in-law of Jonathan Billings, the firm's senior managing director for trading. Jonathan Billings is the brother of Eric Billings, the chairman of the firm.

The fallout from the regulatory investigation has contributed to a 31% slide in Friedman Billings' stock price this year and spawned a flood of class-action lawsuits.

The investigation of the Compudyne deal is part of a broader inquiry by securities regulators into manipulative trading in the PIPEs market. A year ago, the SEC issued subpoenas and requests for documents to 20 brokerages that arranged PIPE deals for cash-strapped companies. Regulators subsequently issued subpoenas to about 10 hedge funds.

The probe is focusing on allegations of stock manipulation by hedge funds, which tend to be the biggest investors in these shadowy stock sales, and allegations of wrongdoing by the Wall Street firms that round up buyers. PIPEs are popular with hedge funds because the buyers can get preferred stock or bonds that convert into common shares at a discount to market prices.

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