Before issuing a September 2001 SBC report, Hamerling analyzed the company's earnings per share, concluded that the earnings did not adequately reflect the company's operating results, and prepared a draft report with that analysis. NASD found that Hamerling did not publish this negative research report because he was concerned that SBC would not attend an upcoming Banc of America Securities conference and that SBC would deny him access to information in the future. NASD found that the published September Report failed to disclose negative facts about the company as well as Hamerling's actual views in violation of NASD rules.
NASD also found that Hamerling published buy ratings for SBC with a $51 target price, while he believed the stock price would decrease and, in emails, recommended that it be shorted. For example, Hamerling responded to a hedge fund manager's inquiry, by stating:
…short SBC. May sound a bit crazy, but it [SBC] has nothing fundamentally sound going for it…"
NASD also determined that Hamerling gave advance notice of his stock ratings, price targets and substantive research to representatives of issuers that he followed. This practice furnished potentially market-sensitive information prior to public release and violated NASD's just and equitable principles rule as well as BAS' own internal policies.
NASD imposed a 9-month suspension and a $125,000 fine payable upon his reassociation with any NASD-registered firm. Details of the violations found relating to research on Williams Communications Group, TyCom, Ltd., and Qwest Communications International Inc. can be found in the Hamerling settlement document. NASD's investigation of research and supervision issues at Banc of America Securities is continuing.
NASD also announced that it took action against several other firms and individuals for violations involving misleading research reports and press releases
- NASD censured and fined Axiom Capital Management, Inc., of New York and three employees an aggregate of $85,000 for publishing misleading research reports in 2001 and 2002 on Sharp Technology, Inc., American Bio Medica, Corp. and MegaPro Tools, Inc. NASD found that these research reports contained misrepresentations and omissions of material fact, exaggerated and unwarranted statements, and opinions for which there was no reasonable basis. Axiom published research reports on Sharp and American Bio Medica and failed to disclose that independent auditors had issued "going concern" opinions about the companies. NASD censured and fined the firm $50,000. NASD also fined and suspended Jeffrey S. Goldberg and David L. Jordon for their roles in preparing the reports and fines and suspended Mark D. Martino from acting in a principal capacity for failing to reasonably supervise these activities.
- NASD censured and fined Banyan Capital Markets, LLC, of Boca Raton, Florida, its owner and President, Barry F. Goldberg, and a research analyst, Louis M. Fischler, an aggregate of $60,000 in connection with the publication of a research report on Neptune Society, Inc. NASD found that the Neptune research report, published by the firm in June 2001, was unbalanced and contained omissions of material fact. The research report projected that revenues would increase from $12 million in 2000 to more than $56 million in 2005. NASD found that the report failed to disclose the company was under a going concern qualification from its auditors and that the company had experienced a net loss in 2000 of over $8 million. The firm was censured and fined $10,000. Barry F. Goldberg was suspended and fined an additional $20,000, and Fischler, who authored the report was suspended for 45 days and fined $30,000.
- Tejas Securities Group, Inc., of Austin, Texas, was censured and fined $35,000 for publishing misleading statements on its Web Site and posting press releases and summaries of research reports that did not disclose risks associated with the securities discussed. Tejas was also ordered to pre-file with NASD's Advertising Regulation Department, for a period of six months, all revisions to the Web Site. NASD also suspended and fined Arnold Durant, the firm's Compliance Director, for failing to reasonably supervise the firm's advertising practices.
"These enforcement actions are part of NASD's continuing efforts to police research analyst conflicts of interest in the wake of the global settlement reached with 10 firms in April of this year," said Mary L. Schapiro, Vice Chairman of NASD.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2002, members of the public used this service to conduct more than 2.5 million searches for existing brokers or firms and requested almost 200,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.
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 member firms. For more information, please visit our Web Site at www.nasd.com.
