EXHIBIT 99.3 NASD LETTER OF ACCEPTANCE, WAIVER AND CONSENT

TO:

Market Regulation Department

RE:

Friedman, Billings, Ramsey & Co., Inc., Broker-dealer No. 25027

1.

Submission of this AWC is voluntary and will not resolve this matter unless and until it has been reviewed and accepted by NASD’s Department of Enforcement and National Adjudicatory Council (“NAC”), pursuant to NASD Rule 9216;

2.

If this AWC is not accepted, its submission will not be used as evidence to prove any of the allegations against Respondents; and

3.

If accepted:

a.

this AWC will become part of Respondents’ permanent disciplinary records and may be considered in any future actions brought by NASD or any other regulator against them;

b.

this AWC will be made available through NASD’s public disclosure program in response to public inquiries about Respondents’ disciplinary records;

c.

NASD may make a public announcement concerning this agreement and the subject matter thereof in accordance with NASD Rule 8310 and IM-8310-2; and

d.

Respondents may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any finding in this AWC or create the impression that the AWC is without factual basis. Nothing in

this provision affects Respondents’ testimonial obligations or right to take legal or factual positions in litigation in which NASD is not a party.

A.

To have a Formal Complaint issued specifying the allegations against them;

B.

To be notified of the Formal Complaint and have the opportunity to answer the allegations in writing;

C.

To defend against the allegations in a disciplinary hearing before a hearing panel, to have a written record of the hearing made and to have a written decision issued; and

D.

To appeal any such decision to the NAC and then to the U.S. Securities and Exchange Commission and a U.S. Court of Appeals.

A.

Respondents hereby accept and consent, without admitting or denying the findings, and solely for the purposes of this proceeding and any other proceeding brought by or on behalf of NASD, or to which NASD is a party, prior to a hearing and without an adjudication of any issue of law or fact, to the entry of the following findings by NASD:

1.

During September and October 2001, FBR had in place written supervisory procedures requiring the maintenance of an information barrier (“Chinese Wall”) between the firm’s traders and principals and employees with non-public information, but FBR failed to enforce these procedures with respect to the Compudyne PIPE, in violation of NASD Conduct Rules 3010(b) and 2110. This failure resulted in FBR’s making a market in Compudyne shares while the firm was in possession of material, nonpublic information.

2.

By failing to recognize and correct these deficiencies, Friedman and Nichols were liable, as control persons under Section 20(a) of the Exchange Act, for FBR’s violation of Section 15(f) of the Securities Exchange Act of 1934 in connection with FBR’s failure to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material, nonpublic information. This conduct also violated NASD Conduct Rule 2110.

B.

FBR and Friedman hereby accept and consent, without admitting or denying the findings, and solely for the purposes of this proceeding and any other proceeding brought by or on behalf of NASD, or to which NASD is a party, prior to a hearing and without an adjudication of any issue of law or fact, to the entry of the following findings by NASD:

1.

In September 2001, Compudyne entered into an investment banking relationship with FBR to raise capital by means of a private placement. Compudyne and FBR agreed to structure the private placement as a “private investment in public equity,” also commonly referred to as a PIPE. A PIPE is a private offering whereby accredited investors agree to privately purchase securities issued by a reporting company on the condition that a re-sale registration statement will be effective within a certain period of time. Once the SEC approves the registration statement, the investors obtain their shares, which they can then sell to public investors on the open market.

2.

In the Compudyne PIPE, the company offered to sell 1,080,000 new shares of common stock and arranged for the sale of another 1,370,000 shares of common stock controlled by William Blair Mezzanine Capital Partners II (“Blair”) (including shares underlying Blair warrants). Ultimately, the PIPE generated $29,400,000 in gross proceeds. Of this, Compudyne received $16,009,947, from which it paid off a $9 million, 13.15% loan from Blair as well as the expenses of the offering.

3.

On September 28, 2001, FBR began to market the Compudyne PIPE offering to its clients. Using a script prepared by its counsel, and without initially divulging Compudyne’s identity, FBR representatives told the firm’s clients that FBR represented an issuer in the electronic security sector that might soon sell some equity, that the deal would be structured as a PIPE and that, if the customer were interested, FBR would disclose who the issuer was and the terms of the potential PIPE transaction, but only if the customer agreed to keep the information confidential.

4.

Beginning no later than September 24, 2001, Friedman was aware of information concerning the upcoming PIPE transaction, including ongoing discussions with Compudyne regarding the structuring and other aspects of the offering. This information was material, non-public information. Friedman was responsible for supervising the firm’s Head Trader.

5.

FBR’s Head Trader was also a salesman in contact with customers. In his role as salesman, the Head Trader also participated in the Compudyne PIPE offering using confident