Jesup & Lamont: NASD Fines, Suspends Analyst - Feb, 2005

NASD fines, suspends analyst for 6 months

By Adam Shell, USA TODAY
NEW YORK — In an investment scam so blatant that it shocked even cynical securities regulators, a stock research analyst was charged with selling tens of thousands of shares of the same stocks that his research reports were telling his institutional clients to buy.

What makes this brash rule-breaking more notable is that it occurred from January 2002 to September 2003. During that period, the cops that patrol Wall Street were deep into their investigation of conflicts of interest among securities analysts. In April 2003, regulators reached a historic $1.4 billion settlement with 10 investment banks that rewrote the rules of how analysts conduct business.

In the latest proof that a "buy" still can mean "sell" on Wall Street, the NASD announced Tuesday that it had fined and suspended Gary Davis, a former research analyst at Jesup & Lamont Securities, for "trading contrary to the recommendations in his research reports" and other violations.

Davis, who netted profits totaling more than $116,500 by selling stocks he touted, was fined $130,000. He also was suspended from the industry for six months and prohibited from working as a research analyst for 18 months. In settling with the NASD, Davis neither admitted nor denied guilt.

NASD Vice Chairman Mary Schapiro hopes the enforcement action against what she calls a "blatant violation of the rules" sends a stern message. "It is incumbent for us to stay vigilant on the conflict-of-interest issue despite it being off the front pages," she says.

The NASD says Davis authored 12 research reports on seven companies with "buy" or "strong buy" recommendations in the 21-month period. On 41 occasions after issuing bullish reports, Davis sold those same stocks, primarily of small biotech companies, such as Collagenex Pharmaceuticals (CGPI) and AVI BioPharma (AVII), the NASD says. Davis sold more than 215,000 shares of stock in his personal account at the firm without disclosing to clients that he owned shares of the companies involved.

Davis also executed four purchases that broke the so-called quiet-period rule. NASD prohibits analysts from buying or selling shares 30 days before and five days after a research report is published.

The NASD also charged New York-based Jesup & Lamont, and its chief compliance officer, Robert Strong, with failing to adequately supervise Davis.

NASD's head of enforcement Barry Goldsmith said it is important to determine how these violations took place. "It's a very important issue because it affects investor confidence," he says.

Lawyers for Davis and Strong did not return calls for comment Wednesday. Jesup & Lamont said in a statement that it "is in the process of responding to the NASD's complaint and disputes a number of the allegations made." The company went on to say it "stands by the integrity of the research Mr. Davis performed during his tenure with the firm."

Contributing: Thor Valdmanis

Contact Us
Contact Us: (800) 259-9010