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Correction to This Article
An April 22 Business article on former Friedman, Billings, Ramsey analyst Susan Kalla incorrectly referred to her as a buy-side analyst, or one who performs research for institutional investors or investment funds. Kalla, who worked for an investment banking and brokerage firm, should have been identified as a sell-side analyst.

Analyst Fired for Personal Trading

FBR Says Kalla Failed To Disclose Stock Deals

By Terence O'Hara
Washington Post Staff Writer
Friday, April 22, 2005; Page E01

Susan Kalla, a well-known and widely quoted Wall Street stock analyst who accurately predicted the collapse of the telecommunications equipment sector in 2000, was fired by Friedman, Billings, Ramsey Group Inc. after an internal investigation into her personal stock trading, according to sources inside and outside the company with knowledge of the matter.

"Ms. Kalla was discharged in connection with an internal review related to her obligations as a research analyst, including her compliance with firm policies and procedures," said FBR spokesman Bill Dixon.

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"The firm's statements about me are inaccurate. . . . Beyond that I have no comment," said Kalla, who was dismissed Friday.

FBR notified the NASD, the self-regulatory and enforcement arm of the securities industry, that Kalla had been terminated after the firm discovered she had traded in stock for her own account without disclosing it, according to a source who read portions of the NASD document to a reporter.

To prevent any potential conflicts, NASD member brokerage firms such as FBR require research analysts to disclose to the firm their personal stock trading, particularly in industries they evaluate for investors.

The sources, who spoke on the condition of anonymity because the matter is under investigation and in dispute between Kalla and the firm, said FBR discovered Kalla had made at least one undisclosed trade in a telecom stock, resulting in her firing. According to FBR's NASD filing, the firm continues to investigate the matter. A spokesman for the NASD would not say whether it was also investigating.

The firing comes at a time of intense regulatory scrutiny of FBR. The Arlington investment firm, which is a major underwriter of initial public stock offerings and private placements of stock with large investors, is under investigation by the Securities and Exchange Commission and the NASD for its 2001 role in marketing shares of Annapolis-based CompuDyne Corp. to a group of hedge funds. A manager of one of the hedge funds has already been cited by the NASD for allegedly profiting from inside information.

Emanuel J. Friedman abruptly retired this month as co-chairman and co-chief executive of the firm he co-founded 16 years ago. Neither the firm nor Friedman provided a reason for his departure. Friedman managed FBR's hedge fund business and was an active stock trader within the firm, though none of FBR's hedge funds invested in the CompuDyne deal in 2001.

Kalla, according to her publicly available NASD file, has never been subject to any regulatory or enforcement actions during 13 years in the securities business, nor have any clients ever filed formal complaints against her.

Kalla, a "buy-side" analyst -- most of FBR's brokerage clients are large institutions and wealthy investors, not small investors -- gained prominence as one of the few analysts to predict a bubble of overcapacity at a time when most telecom equipment makers that she followed closely were enjoying sky-high stock prices.

In the summer of 2000, for example, she was steadfastly critical of the stock price of Linthicum-based Ciena Corp., which makes equipment for fiber-optic transmission. It hit more than $120 a share in October 2000. It closed yesterday at $2.05, and as late as last week -- before FBR dropped coverage of the stock -- she still had a tepid "market perform" recommendation on Ciena.

She was favored by newspaper reporters for her crisp and often cutting comments. When asked if banks would be unwilling to continue to lend money to local phone provider Qwest Communications International Inc. after that company reported accounting irregularities in 2002, she expressed her doubt this way: "The banks know there is never just one cockroach in the kitchen."

Recently, she had turned more positive on several major equipment makers, such as Cisco Systems Inc., Lucent Technologies Inc. and Nortel Networks Corp., rating each "outperform."

In July, FBR reassigned most of her telecommunications carriers, such as Sprint Corp., Nextel Communications Inc., Verizon Communications Inc. and SBC Communications Inc., to fellow FBR analyst Michael G. Bowen. Kalla, however, continued to be widely quoted in newspapers about those and other technology stocks.

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