Updated from April 4

In a surprise move,

Friedman Billings Ramsey


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


( CDCY), a Maryland security company. Last November, the firm disclosed that the

Securities and Exchange Commission

and the


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.

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.

Regulators are looking for evidence that a select group of investors took unfair advantage of the usual decline in a company's share price after a stock placement is announced. The regulators are concerned that some hedge funds might have found out prematurely that a company was considering a PIPE deal. So armed, a hedge fund could set up a short position on stock, betting that a flood of discounted shares will drive down the price.

The investigation of the Compudyne deal already has resulted in securities charges against hedge fund manager Hilary Shane.


previously reported in January that the NASD has charged Hilary Shane, a former hedge fund manager at

First New York Securities

, with employing a "scheme or artifice to defraud," in a civil complaint. The NASD complaint alleges Shane improperly bet against shares of Compudyne in advance of the stock sale both for her own account and the hedge fund she formerly managed, First New York's FNY Millennium Partners fund.

The NASD's complaint against Shane is still pending.