suspended and fined former
Bank of America
telecom analyst Andrew Hamerling for issuing misleading research reports that touted stocks he was simultaneously advising hedge funds to sell short.
The brokerage industry's largest self-regulatory organization also alleged that Hamerling provided some of the companies he covered with advance notice of forthcoming research reports and rating changes.
Some of the stocks Hamerling allegedly issued misleading reports about included
. (Williams filed for bankruptcy in 2002 and is now part of
, a financial firm that invests in distressed businesses.)
In the case of SBC, a southwestern U.S. telecommunications company, Hamerling sent an email to a BofA hedge fund client, advising the customer to "short a lot of SBC ... the company is clearly overvalued and has to lower its growth rates.'' At the time, Hamerling had a "buy'' rating on the stock.
Shorting is a bet that the price of a stock will fall.
reported that Hamerling and the NASD were
close to reaching a settlement in the matter.
confirmed the settlement Monday, a day before the NASD disclosed the deal.
In the settlement, Hamerling agreed to a nine-month suspension from the brokerage industry and to pay $125,000 if he accepts a job with another Wall Street brokerage. As is customary in securities regulatory settlements, Hamerling neither admitted nor denied the NASD allegations.
Hamerling, who was fired by Bank of America in January 2002, currently is an analyst with
, a New York hedge fund with more than $2 billion in assets.
The temporary suspension would not affect his employment at Galleon, or any other hedge fund, because they are not registered as brokerage firms. He also would not have to pay the fine as long as his work on Wall Street is limited to the hedge fund community.
Hamerling and his lawyer, Jeff Kaplan, both declined to comment.
The settlement document includes a number of emails in which Hamerling espouses views contrary to the positions he takes in his research reports. The document, however, doesn't disclose the identities of the recipients of those emails.
The NASD action against Hamerling is the first time regulators have alleged that a BofA stock analyst issued misleading research. The North Carolina-based bank, which is in the process of acquiring
, was not a party to the $1.4 billion tainted-research settlement that securities regulators signed this year with 10 Wall Street firms.
It had been widely believed that BofA had emerged unscathed from last year's investigations into conflicts of interest among stock analysts. But people familiar with the Hamerling investigation said it stems from a broader regulatory inquiry into some of BofA's research and stock-trading practices.
Shirley Norton, a bank spokeswoman, said the bank "terminated" Hamerling on Jan. 23, 2002, after finding he had violated a "policy on internal and external email communications." She said the bank informed regulators of its actions soon after Hamerling's dismissal.
The NASD, in a press release announcing the settlement, said it is continuing its investigation of "research and supervision issues" at the bank.
Indeed, the settlement documents illustrate that some of Hamerling's motives in maintaining positive ratings on stocks was driven by a desire not to offend companies that also were investment banking clients of the firm.
The NASD found that even though Hamerling had a buy rating on Williams in early 2001, he was concerned about the company's future and privately questioned its long-term survival. In fact, he wanted to downgrade the stock, but decided against it because of the banking relationship BofA had with the struggling telecom.
A critical piece of the $1.4 billion research settlement is a measure that requires Wall Street firms to enact strict rules separating investment bankers from research analysts. One of the goals of the settlement was to stop investment bankers from putting undue pressure on analysts and forcing them to issue positive research reports about corporate clients.