The investigation into the Compudyne transaction also led regulators to pursue a potential enforcement action against Friedman Billings Ramsey ( FBR), the investment bank that lined up hedge funds to invest in the PIPE deal. For the past six months, regulators have been involved in settlement negotiations with Friedman Billings and three former executives, including Emanuel Friedman, the firm's co-founder and former co-CEO.

Friedman resigned as CEO in April , just one day before the SEC and NASD formally notified him that he could be charged with "aiding and abetting" insider trading in the Compudyne deal.

Friedman Billings, however, isn't the only Wall Street firm to get ensnared in the PIPEs investigation.

This summer, Knight Capital ( NITE) disclosed that its Deephaven asset management group could face potential regulatory action over its trading in a series of PIPE deals from June 1999 through March 2004. Refco ( RFX), meanwhile, has set aside $5 million to cover the cost of settling allegations that some of its brokers acted improperly in arranging trades for an investor in a PIPE transaction.

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