NASD Fines 3 Brokerages Over Stock Research
In a crackdown that may reopen old wounds for investors, regulators fined three brokerages and several securities analysts Tuesday for issuing allegedly bogus stock research in recent years.
In one case, the National Assn. of Securities Dealers fined and suspended a former Banc of America Securities analyst for touting SBC Communications Inc. and three other large telecommunications firms in 2001 even as he predicted privately that their shares would tumble.
NASD also fined a Florida brokerage and one of its stock analysts for issuing a glowing report about Neptune Society Inc., a Burbank-based cremation company, in 2001. The firm’s stock was a highflier that year but since has collapsed.
At a time when mutual fund trading abuses have become the dominant scandal in the financial industry, the NASD cases filed Tuesday recall the stock-analyst misconduct revelations that first rocked markets in 2002.
The key issue in both scandals has been abuse of individual investors’ trust in Wall Street.
In the BofA case, NASD said analyst Andrew Hamerling issued six reports between April and November 2001 that praised SBC, Qwest Communications International Inc., TyCom Ltd. and Williams Communications Group even though he thought all of the stocks were overpriced.
As they did in earlier cases against analysts, regulators based the charges against Hamerling on private e-mail messages in which he derided the companies’ prospects. Several times he advised hedge fund clients to sell the stocks short, a strategy aimed at profiting from falling share prices.
NASD said Hamerling told one hedge fund in 2001 that “it may sound a bit crazy, but [SBC] has nothing fundamentally sound going for it.” At the same time, the analyst was publicly telling investors that he rated the stock a “buy.”
NASD said Hamerling did not publish negative research on SBC because he was worried the firm wouldn’t attend an upcoming BofA conference “and that SBC would deny him access to information in the future.”
Regarding TyCom, Hamerling told another hedge fund in an e-mail: “Short it like there’s no tomorrow. This baby should crack in half at minimum.”
Telecom stocks as a group were in deep declines for much of 2001 and 2002. SBC fell 43% over the two-year period.
NASD suspended Hamerling for nine months and fined him $125,000. However, Hamerling would be subject to the penalties only if he worked at another brokerage. He was fired by BofA in December 2001 and now works at a New York hedge fund, which is outside the purview of NASD, the self-regulatory agency for brokerages.
“Under this settlement, Andrew Hamerling will not pay a penny, which is how it should be,” said Jeff Kaplan, his attorney.
BofA was not charged.
In the Neptune case, NASD said Louis Fischler, an analyst at Banyan Capital Markets in Boca Raton, Fla., published a June 2001 report that rated Neptune an “aggressive buy” but failed to warn of the company’s financial problems.
The report projected that the firm’s revenue would rise from $12 million in 2000 to more than $56 million in 2005. But it didn’t disclose that Neptune had a net loss of almost $9 million in 2000, and the report “was unbalanced and contained omissions of material,” NASD said.
Neptune shares traded as high as $24.80 in mid-2001, adjusted for a subsequent reverse stock split. The shares recently traded at $1.31.
Fischler’s report also did not disclose that Neptune had agreed to pay Banyan $6,000 to $7,000 for the report, NASD said. Neptune eventually paid Banyan $616 in expenses.
Fischler was fined $30,000 and suspended for 45 days. Banyan and its owner, Barry F. Goldberg, were fined a total of $30,000.
Fischler’s attorney did not respond to a call seeking comment. Banyan and its president could not be reached for comment.
The two other brokerages fined by NASD on Tuesday for issuing allegedly misleading research were small firms in New York and Texas.
