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Banker Settles Probe of Threats

Securities: U.S. Bancorp Piper Jaffray and worker will pay $300,000, ending an investigation of possible retaliatory acts.


NEW YORK — U.S. Bancorp Piper Jaffray and one of its investment bankers agreed Tuesday to pay $300,000 to settle an investigation into whether the firm dropped analyst coverage of a small biotechnology firm to retaliate for the loss of investment-banking work.

The payment ends a probe by the National Assn. of Securities Dealers, the industry group that regulates brokerage firms, into whether the firm ceased coverage of Antigenics Inc. to punish the New York company for hiring a Piper rival to handle a $60-million stock offering in January.

The NASD found that investment banker Scott Beardsley, after being told by Antigenics that it had chosen UBS Warburg as its so-called lead underwriter, threatened to discontinue analyst coverage unless Piper was given the business. Antigenics stuck with UBS Warburg and Piper stopped following the stock shortly thereafter. At the time, Piper rated Antigenics a "strong buy."

Under terms of the settlement, Piper was fined $250,000 and Beardsley was fined $50,000. Beardsley and the firm neither admitted nor denied the NASD's allegation that they violated the organization's rule requiring "just and equitable" business practices.

"It is a substantial fine, indicative of the significance of the conduct," said Barry Goldsmith, NASD executive vice president of enforcement.

Piper said in a statement that the settlement was in "the best interests of our clients and our business." A spokeswoman declined further comment.

The case demonstrates how closely intertwined investment banking and stock research are at many firms, despite the intensive efforts of securities regulators to separate the two.

Amid a furor over analysts' perceived lack of objectivity, regulators have proposed new rules designed to ensure analyst independence. Critics say analysts sometimes twist their recommendations to help their firms win lucrative investment-banking work.

That is normally done by praising the stocks of investment-banking clients. The Piper case is a new twist in that the removal of analyst coverage allegedly was used to threaten a wayward client.

Piper handled Antigenics' initial public offering in early 2000 and may have believed its analyst's coverage assured it dibs on the company's future investment-banking business, said John Coffee, a Columbia University law professor. The elimination of coverage also suggests that stock research at some firms is used as little more than a bargaining chip in the quest for investment-banking fees.

Analyst coverage is crucial for small companies such as Antigenics, developer of a promising cancer drug. Kind words from analysts help small companies win attention from mutual funds and other institutional investors. Conversely, abruptly ending coverage, especially by the brokerage that handled an IPO, can be interpreted by investors as a red flag.

Normally, companies are reluctant to publicly confront investment banks. But Garo Armen, Antigenics' chief executive, said Tuesday that he was incensed and complained to regulators.

"I got plenty of advice not to do this," Armen said. "They said 'You've got nothing to win, but possibly things to lose.' But it's like witnessing a crime and not being willing to testify."

According to the NASD, Antigenics told Beardsley on Dec. 27 it had chosen UBS Warburg to head the underwriting.

Beardsley told Armen that Piper would drop coverage unless Piper was named lead manager, the NASD said.

Antigenics announced Jan. 2 that UBS Warburg would lead the offering. Two days later, Piper dropped coverage of Antigenics. The biotech company's stock has fallen more than 40% since then. It closed Tuesday at $9.50, down 20 cents, in Nasdaq trading.

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