Matthew Goldstein
Investment firm Friedman Billings Ramsey(FBR Quote - Cramer on FBR - Stock Picks) is paying $4.5 million to a company it managed a controversial private placement for in 2001.
The payment settles a lenghty dispute with CompuDyne(CDCY Quote - Cramer on CDCY - Stock Picks), a small Maryland security services company, that had retained Friedman Billings. The dispute stems from Friedman Billings' handling of a PIPE, or private investment in public equity, that raised about $12 million for CompuDyne. A fund managed by William Blair, which also sold shares as part of the PIPE, is getting some of the settlement proceeds. For several years, the CompuDyne PIPE deal has drawn great scrutiny form securities regulators looking into allegations of improper trading in the $22-billion-a-year market for PIPEs. The transaction has led to the filing of civil and criminal charges against some hedge fund managers who invested in the deal. Friedman Billings itself has proposed paying $7.5 million to the Securities and Exchange Commission and the NASD to resolve allegations that some of its proprietary hedge funds misused confidential information about the CompuDyne PIPE. A PIPE is a financing transaction in which small-cap companies raise cash by selling either discounted stock or a bond that converts into shares to hedge funds and other fast-money traders. The share price of a company doing a PIPE typically falls after a deal is announced to the public.
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