FBR To Pay Regulators $7.7 Million To Resolve Charges Related To Improper Short Selling Of Compudyne PIPE Shares - Former FBR Chairman Emanuel Friedman Suspended As Supervisor, Fined $1.2 Million, Former Chief Compliance Officer Censured, Fined $110,000

NASD announced today that Friedman, Billings, Ramsey & Co., Inc. (FBR), an investment banking and brokerage firm based in Arlington, VA, has agreed to pay more than $7.7 million to NASD and the Securities and Exchange Commission (SEC) to resolve charges arising from FBR's improper trading in shares of Compudyne Corporation, in a PIPE deal it structured and managed for the Maryland-based security firm. The action announced today is the fourth enforcement action NASD has taken arising from the Compudyne PIPE deal.

NASD imposed a fine of $4 million on FBR. In a separate settlement with the SEC, FBR agreed to pay more than $3.7 million in civil penalties, disgorgement and interest. FBR also agreed to hire an independent consultant acceptable to NASD and the SEC to review its procedures for safeguarding material, nonpublic information.

FBR's former chairman, Emanuel Friedman, and its former Chief Compliance Officer, Nicholas J. Nichols, also entered into settlement agreements with NASD and the SEC. NASD fined Friedman $500,000 and suspended him from acting in a supervisory capacity with any NASD-registered firm for two years. Friedman will pay a civil penalty of more than $750,000 to the SEC. Nichols will pay a $50,000 fine to NASD and a civil penalty of $60,000 to the SEC.

"This settlement furthers NASD's efforts to prevent and deter abuses in the rapidly-growing market for PIPEs," said Cameron K. Funkhouser, Senior Vice President of NASD's Department of Market Regulation.

A PIPE (Private Investment in a Public Equity) is a private offering in which accredited investors agree to purchase restricted, unregistered securities of public companies. Only after the PIPE shares registration is approved by the SEC are investors free to sell them on the open market. PIPE shares can only be offered to "accredited" investors - investors with assets of $1 million or more.

NASD found that in September 2001, Compudyne Corporation and FBR, its placement agent, offered accredited investors - on a confidential basis - a PIPE deal proposing to sell 2.45 million shares of common stock, which raised more than $29 million. The restricted stock was offered at the below-market price of $12 per share. NASD found that FBR failed to maintain an information barrier to prevent trading by FBR personnel who were aware of this information.

As part of efforts to make a market in Compudyne, supply liquidity, and advertise FBR's capabilities, FBR's head trader, who was aware of material, nonpublic information about the PIPE, engaged in trading in Compudyne before the PIPE was announced to the public. By the time the PIPE was announced on Oct. 9, 2001, FBR had a net short position of approximately 179,495 shares.

FBR eventually covered its short position by buying shares of Compudyne after the shares that had been purchased in the private placement were registered and became tradable in the market. FBR made a profit of approximately $343,773 on the short sales of Compudyne that were executed before the public announcement of the PIPE.

NASD also found that FBR failed to enforce its written supervisory procedures designed to protect confidential information, failed properly to locate stock to borrow in order to sell Compudyne shares short, and misinformed NASD about the departure from the firm of a broker involved in selling the Compudyne PIPE.

In settling this matter with NASD, FBR, Friedman, and Nichols neither admitted nor denied the charges, but consented to the entry of NASD's findings. In the SEC proceeding, FBR, Friedman, and Nichols consented to the entry of a final judgment by the U.S. District Court, and FBR and Friedman consented to an SEC administrative order, without admitting or denying the allegations in the SEC's complaint.

NASD has brought three previous enforcement actions arising from the Compudyne PIPE deal. In May 2005, NASD permanently barred hedge fund manager Hilary L. Shane and fined her $375,000 to settle charges of fraud and insider trading in connection with her purchase and sale of Compudyne PIPE shares. In a separate action, the SEC ordered Shane to pay more than $1 million in civil penalties, disgorgement of ill-gotten gains and interest.

In September 2006, NASD fined First New York Securities, L.L.C. (FNY) - where hedge fund manager Shane was registered - $100,000 and required FNY to revise its supervisory procedures. At the same time, NASD fined Shane's supervisor at FNY, Michael L. Friedman, $100,000 for supervisory failures.

In December 2005, NASD permanently barred hedge fund manager and former FBR broker John Mangan, Jr., to settle charges that he deceptively obtained shares in the Compudyne PIPE transaction, improperly sold the shares short and shared in the profits from the shares without obtaining permission from FBR. NASD also fined Mangan $125,000.

Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.