Wall Street regulators fined U.S. Bancorp Piper Jaffray $300,000 on Tuesday, and censured the investment banking firm for threatening to drop research coverage of Antigenics unless the biotech firm chose Piper Jaffray to be its banker.
The National Association of Securities Dealers (NASD), which brought the action, also criticized Scott Beardsley, the senior banker for Piper Jaffray’s biopharmaceutical group. Beardsley was ordered to pay $50,000 of the fine.
The settlement comes just one month after Merrill Lynch agreed to pay $100 million to settle charges brought by New York’s attorney general that the investment bank gave rosy stock ratings to companies that were investment-banking clients.
“It’s the first case anyone has brought against a firm for threatening to drop research coverage unless they got investment banking business,” said Barry Goldsmith, executive vice president of enforcement for the NASD.
On Dec. 27, Antigenics’ chief executive officer, Garo Armen, told Beardsley the biotech company planned to use UBS Warburg to underwrite a second stock offering.
Beardsley told Armen that if Piper Jaffray, which had a “strong buy” rating on Antigenics’ stock, wasn’t the lead underwriter, his firm would cut off research coverage. Beardsley also said that Piper Jaffray would stop making a market in Antigenics’ stock â€” a process by which the investment bank helps match up buyers with sellers.
Armen wrote a letter to the chairman of Piper Jaffray complaining about the threatened retaliation.
But on Jan. 4, two days after Antigenics said it would sell 4 million shares of stock using UBS Warburg, Piper Jaffray ended its research coverage of the company.
“We felt they did it to derail our offering, and it was improper for them to flex their muscle to try to teach us a lesson and to send a message to their clients not to drop them from the No. 1 slot,” Armen said in an interview.
The NASD found Piper Jaffray violated the rule for high standards of commercial honor and just and equitable principles of trade.
Piper Jaffray did not admit or deny any wrongdoing.
“We believe that an expeditious settlement of this matter was in the best interests of our clients and our business,” said Thomas Schnettler, Piper Jaffray president.
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