Friedman Billings Ramsey ( FBR) may not be out of the woods yet on a stock sale that already has landed the firm in talks with securities regulators. The Virginia-based investment outfit still could face potential litigation from Compudyne ( CDCY), the Maryland security-systems manufacturer that hired Friedman Billings four years ago to handle the $12 million deal. Martin Roenigk, Compudyne's chairman and chief executive, says the small-cap company is considering "whatever remedies" are available to it in the wake of the revelation that Friedman Billings and three of the firm's top executives may have engaged in insider trading with regard to the company's 2001 PIPE, or private investment in public equity, deal. FBR shocked Wall Street this week with the news that it proposed a $7.5 million settlement of the matter to securities regulators. The company said a charge associated with the settlement would slash first-quarter earnings. One of the executives involved in discussions with regulators is Emanuel Friedman, a co-founder of FBR. He announced three weeks ago that he's stepping down as co-chairman and co-chief executive. Friedman's decision to suddenly leave the firm is related to his role in the scandal, sources say. Compudyne "feels damaged and intends to pursue whatever remedies will result from that," says Roenigk, who has had lawyers looking into the matter for several months. Bill Dixon, a Friedman Billings spokesman, declined to comment on the possibility of Compudyne suing the firm. Trying to estimate Compudyne's potential damages is difficult, especially because much is still unknown about Friedman Billings' alleged misdeeds. People familiar with the inquiry say regulators have focused on trading activity by Friedman Billings in shares of Compudyne in advance of the PIPE becoming public. The investment firm may have been trying to profit from the typical decline in the shares of company that undertakes a PIPE deal.