Regulators fined Brad Hintz, one of Wall Street's better-known brokerage analysts, for violating conflict-of-interest rules.
The NASD fined the Sanford Bernstein analyst $200,000 for selling shares of
during a period he had positive recommendations on the firms.
The regulatory organization also fined Bernstein, a division of
, $300,000 for allowing the stock sales to take place. Hintz and his employer agreed to pay the fines and settle the matter without either admitting or denying the allegations.
The action against Hintz is one of the first taken against an analyst since regulators enacted a series of rules designed to prevent analysts from improperly profiting from their recommendations on stocks they cover. But the sanction is intriguing given that Hintz and Bernstein had taken steps to disclose the sale of shares to Bernstein customers and even sought out guidance from regulators.
Hintz sold the shares after terminating coverage of Morgan Stanley and Lehman in December 2004. The Bernstein research reports said Hintz was stopping coverage to permit him to sell shares he'd acquired during the years he worked at both firms. They added that Hintz intended to resume coverage of both firms, after the sales were completed.
Before terminating the coverage of Morgan Stanley and Lehman, Bernstein had sought a "hardship" exemption from the NASD to permit Hintz to continue covering the companies while selling the shares. But the firm noted in the research reports that it was "unsuccessful in its efforts."
Hintz, before coming to Bernstein, was a chief financial officer at Lehman and a managing director at Morgan Stanley. The shares and options he was exercising were all acquired during his days working at those firms.
The NASD, however, determined that the plan devised by Hintz and Bernstein did not eliminate the potential conflict of interest. The problem, regulators said, was that the termination of coverage was only a temporary maneuver designed to accommodate Hintz's desire to exercise his options.
"Inconvenience or expense does not excuse noncompliance with NASD's rules against analysts trading contrary to their research recommendations," said James Shorris, the NASD's acting head of enforcement.
The NASD contends the positive "investment recommendations on both companies therefore remained in force, despite the purported 'termination.'" NASD rules to deter analyst conflicts of interest require an analyst to issue a sell recommendation before selling any of his own shares in a company.
Hintz declined to comment on the case. His lawyer could not be reached for comment. Bernstein's attorney, Robert Romano, an attorney with Morgan Lewis & Bockius, declined to comment.
But the temporary termination of coverage was not the only issue that got Hintz in hot water with regulators.
The NASD also contends he violated conflict of interest rules by failing to disclose "numerous stock transactions" in six brokerage stocks. The trades took place in a discretionary, or managed, brokerage account Hintz had with US Trust, a division of
. The regulators found some of the trades were contrary to Hintz's then-published recommendations on those stocks.
A discretionary account is one in which the customer gives a broker or a trustee the authority to make trades without his consent.