NEW YORK -- Brad Hintz of Sanford C. Bernstein & Co., one of the top-ranked securities firm analysts on Wall Street, was fined $200,000 yesterday for violating conflict-of-interest rules when he sold Lehman Brothers Holdings Inc. and Morgan Stanley shares while his firm was recommending them to investors.
Sanford C. Bernstein had "favorable ratings" on the two securities firms "that remained in effect while its research analyst, Hintz was selling his own shares in the two companies, a violation of NASD rules prohibiting trading contrary to an analyst's recommendation," NASD said.
Sanford C. Bernstein was fined $350,000.
The fines are the largest the NASD has imposed for violations of its new research analyst conflict rules, which took effect in July 2002, the group formerly known as the National Association of Securities Dealers said.
In April 2003, 10 Wall Street firms signed a $1.4 billion settlement with U.S. regulators over allegations that research was tainted to win investment-banking business.
Hintz, 56, had received the securities as compensation. He was Lehman's chief financial officer from 1996 to 1998 and worked at Morgan Stanley from 1986 to 1996.
To sell the stock, U.S. securities rules required him to put a "sell" rating on those firms in his coverage as an analyst, a situation he had previously called a Catch-22.
Instead, acting under a plan developed by Sanford C. Bernstein, he suspended his coverage Dec. 23, then sold Lehman shares and exercised Morgan Stanley stock options in January.
NASD said the rule barring analysts from selling a stock that they are simultaneously recommending to investors applied to Hintz "since there was no bona fide termination of coverage."
Hintz and John Meyers, a spokesman for Bernstein's parent, Alliance Capital Management Holding LP, didn't return calls yesterday seeking comment.
Hintz, the third-ranked U.S. analyst for brokerages in Institutional Investor's annual survey, published research reports on Morgan Stanley and Lehman on Dec. 23, each titled "Terminating Coverage."
In the Morgan Stanley report, Bernstein said it "approached the NYSE and the NASD seeking regulatory consent for Mr. Hintz to continue to cover Morgan Stanley while exercising the options and selling the resulting MWD shares but was unsuccessful in its efforts." Morgan Stanley's ticker symbol is now MS.
Hintz sold 71,209 shares of Lehman and exercised 68,178 options on Morgan Stanley shares in January, according to NASD. He realized a profit of $6.2 million after selling all his Lehman shares Jan. 6 and an after-tax profit of $1.3 million from exercising the options on Morgan Stanley shares a day later, the NASD said.
When Hintz dropped coverage, he had an "outperform" recommendation on Morgan Stanley, the No. 2 U.S. securities firm by market value, and a "market perform" rating on Lehman, the No. 4 U.S. firm. He said at the time that he planned to reinstate coverage in February after selling shares to diversify his personal portfolio. He has yet to do so.
Hintz could have kept the Lehman shares and used available cash and assets to exercise the options on Morgan Stanley shares, the NASD said.
The regulatory organization also faulted Hintz for sales of stock in companies he covered that were part of a discretionary investment account he set up in 1999 at U.S. Trust Co. Hintz gave U.S. Trust instructions to manage the account so as to track the Russell 1000 index of large U.S. companies, the NASD said.
Between August 2002 and January 2004, Hintz's account bought or sold broker/dealer stocks on 27 occasions where the transaction contradicted his ratings.