Securities regulators are investigating trading in shares of so-called blank-check IPOs, which are stock deals done by companies in search of a business plan.

The NASD investigation is focusing on some of the investment banks that have been underwriting these somewhat unusual initial public offerings, sources say. The inquiry, which began last year, is in its early stages.

Sources say one investment firm drawing particular scrutiny is EarlyBirdCapital, a New York firm that has been either the lead underwriter or co-manager on about half of the 47 blank-check initial offerings to come to market the past three years. More than any other investment bank, EarlyBird is credited with breathing new life into blank-check IPOs, after the stock offerings fell out of favor in the late 1990s.

In the case of EarlyBird, regulators have begun gathering email correspondence between some of the firm's employees and investors in blank-check deals, say people familiar with the inquiry.

An NASD spokesman could not be reached for comment. EarlyBird issued a statement Monday saying, "We have received an inquiry from the NASD and are cooperating fully.''

The regulatory investigation comes at a time that blank-check IPOs have become all the rage on Wall Street, especially among hedge funds with money to burn. Investors who buy into blank checks are in effect betting on the resumes of the managers and their ability to find suitable businesses to acquire.

Over the past three years, investors have sunk more than $2 billion into blank-check IPOs. But so far, only a handful of those blank-check companies have completed a merger with an actual business. That includes last week's tentative $265 million deal between blank-check company Services Acquisition Corp. International ( SVI) and Jamba Juice, a San Francisco-based chain of smoothie beverage stores.

Broadband Capital Management was the underwriter on Services Acquisition's June 2005 IPO.

The money raised in a blank-check offering is held in an interest-bearing account and ultimately returned to investors if a merger is not completed within 18 month of the IPO.

Still, the deals keep coming despite the less-than-auspicious track record on the merger front. Just last week, Acquicor Technology ( AQR.U), a blank-check company led by three former Apple executives, raised $150 million to finance the acquisition of a business "in the technology, multimedia and networking sectors."

One thing regulators are looking into is the post-IPO trading activity in the warrants to purchase future stock, which are sold to investors as part of every blank-check initial public offering, sources say.

In a standard blank-check offering, an investor purchases a unit, which typically includes a share of stock, and one or two warrants -- a specialized security that gives the owner the right to buy additional shares at a predetermined price. About a month after the IPO, the stock and warrants typically begin to trade as two separate securities.

The units in a blank-check offering are typically priced around $6 or $7 a share.

If a blank-check company can find a merger partner, the warrants could be worth quite a bit in the future. But until a deal is announced, there's often little demand for the warrants.

For instance, the warrants issued by Courtside Acquisition ( CRB), a blank check company underwritten by EarlyBird, most recently traded around 68 cents a share. The stock itself trades at $5.32.

Each unit in the Courtside IPO, which raised $72 million last June, was priced at $6.

To some degree, it's not surprising that regulators would take a look at EarlyBird. David Nussbaum, EarlyBirdCapital's chairman, and Steven Levine, the firm's chief executive, both hail from GKN Securities, a defunct brokerage that tried to make a name for itself by underwriting blank-check IPOs. The firm, however, ran into its own problems with securities regulators in the 1990s.

In the mid-1990s, GKN managed about a dozen blank-check IPOs, which the firm calls "specified purpose acquisition companies," or SPACs. GKN even applied in 1992 to trademark the name, and EarlyBird has resurrected the SPAC name in its latest blank-check offerings. But GKN's monopoly in blank checks came to a crashing halt in 1997, when the NASD ordered the firm and 29 brokers and supervisors to pay more than $2 million in fines and restitution to settle allegations they had overcharged investors buying shares in eight newly minted stocks. The regulators alleged that GKN had excessive markups on the shares because it essentially controlled their post-IPO trading.

Some of the stocks GKN allegedly gouged investors on were the same blank-check companies it had taken public.

In an interview with TheStreet.com last summer, Nussbaum dismissed the regulatory problems at GKN as ancient history and says it should have no bearing on EarlyBird. He said the regulatory violations at GKN involved post-IPO trading, and EarlyBird doesn't make a market in the stocks of companies it takes public.

But a person familiar with the latest investigation says one thing regulators are looking into is the relationship between EarlyBird and some of the firms that serve market-makers for its blank-check IPOs.

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