NASD Fines Robertson Stephens and Former VP $350,000 for Attempting to Coerce Investment Banking Fees; Also Charges Former Managing Director
Washington, D.C.—NASD announced today that—as part of its continuing regulatory focus on investment banking and research analyst activities—it has censured and fined Robertson Stephens, Inc. and its former senior investment banker, Richard (“Kevin”) Davies, a total of $350,000 for threatening to discontinue research coverage of a public company unless that company paid Robertson Stephens $1 million in investment banking fees.
NASD found that Davies threatened ResMed, Inc., a public company located near San Diego, CA, by telling a ResMed official that he would instruct Robertson Stephens’ research analyst to discontinue research coverage if ResMed did not pay Robertson Stephens $1 million to participate as a secondary manager in ResMed’s planned convertible bond offering in 2001. NASD separately filed a complaint against Hany Awadalla, a former Managing Director of Robertson Stephens, related to the same misconduct.
The actions of Robertson Stephens and Davies violate NASD's rule requiring all firms and associated persons to adhere to high standards of commercial honor and just and equitable principles of trade. This coercive conduct also has the potential to undermine competition for investment banking services.
"Brokerage firms and their executives cannot use threats regarding research activities as a way to exact investment banking business,” said Mary L. Schapiro, NASD’s Vice Chairman and President of Regulatory Policy and Oversight. “Coercion of this type cannot be allowed to determine whether research coverage of a public company will continue. Investors are entitled to research that is based on the merits and that is not influenced by improper threats.”
NASD found that in early June 2001, ResMed’s Vice President and Corporate Secretary contacted Davies by telephone to offer Robertson Stephens the opportunity to participate as a secondary manager in the convertible bond offering. During the negotiations, Davies told the ResMed Vice President that unless Robertson Stephens was paid $1 million to participate in the offering, he would instruct the firm’s research analyst to drop coverage of ResMed and that Robertson Stephens would not participate in the offering. At this time, Robertson Stephen rated ResMed as a "Buy."
Despite the threat, ResMed personnel decided to end the negotiations, and Robertson Stephens did not participate in the convertible bond offering that was announced by ResMed on June 11, 2001. On June 20, 2001, Robertson Stephens issued a research report changing its rating on ResMed from a “Buy” to a “Market Perform.” The report stated that the changed rating was based on an analysis of valuation criteria. This was the last research report on ResMed that Robertson Stephens published.
As part of its settlement with NASD, Robertson Stephens, which is no longer in business, was censured and fined $275,000. Davies was censured and fined $75,000. In settling this matter, Robertson Stephens and Davies neither admitted nor denied NASD's findings.
In July 2002, FleetBoston Financial Corporation, Robert Stephens’ parent company, announced its intention to wind down the firm. Robertson Stephens subsequently withdrew from NASD in May 2003.
NASD also announced that, in a related matter, it has filed a complaint against Hany Awadalla, a former Managing Director in Robertson Stephens’ mergers and acquisitions group. The complaint alleges that Awadalla, in assisting Davies in the fee negotiations with ResMed, made a similar threat to the same ResMed official. The complaint charges that this was an attempt by Awadalla to obtain a larger fee for Robertson Stephens’ investment banking services than ResMed was willing to pay. NASD charged that, by virtue of his conduct, Awadalla failed to observe high standards of commercial honor and just and equitable principles of trade.
Under NASD rules, the individuals and the firms named in the complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, suspension, bar, or expulsion from NASD.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by contacting NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 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 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 securities firms. For more information, please visit our Web Site at www.nasd.com.