Big Board specialist firm Van der Moolen ( VDM) is paying a $3.5 million fine to settle allegations of impropriety in the firm's now-defunct stock-lending operation. The fine, levied by the New York Stock Exchange, could be the first of many as Big Board regulators say they are focusing on alleged stock-lending abuses. The fine against Van Der Moolen stems from allegations the firm paid "unjustified finders' fees" to 29 friends and family members of its stock-lending department. The fees were allegedly paid as compensation for helping to arrange stock-loan transactions. But the NYSE says the payments were illegitimate and only increased the cost to traders looking to borrow stock from Van der Moolen, which operates the fourth-largest specialist firm, or market maker, in Big Board stocks. Traditionally, there is no need for a broker, or a middleman, in arranging a stock loan. A hedge fund or trader looking to borrow stock to sell short almost always deals directly with a big Wall Street firm. For some Wall Street investment firms, such as Bear Stearns ( BSC), Morgan Stanley ( MS) and Goldman Sachs ( GS), lending stock is a big business. Firms often charge double-digit interest rates to traders looking to borrow shares of illiquid stocks. "Van der Moolen's complete lack of supervision of its stock-loan business resulted in millions of dollars in fees being improperly channeled to finders who did nothing to earn them," says Susan Merrill, NYSE chief of enforcement. "Firms must ensure that services are being engaged for bona fide business purposes." Van der Moolen shut down its stock-lending business, which once employed a dozen people, in February 2005. The decision was motivated, in part, by the NYSE investigation, which covered 2004. Last month, NYSE regulators strongly hinted that they were on the verge of cracking down on stock-lending abuses. Speaking at a securities industry conference, NYSE Regulation Chief Executive Richard Ketchum told Dow Jones Newswires that the Big Board would bring "some significant case on the stock loan side of things in the relatively near future."