August 10, 2011

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts

The SEC is charging Stifel, Nicolaus & Co. and its former Senior Vice President David W. Noack with securities fraud over the sale of unsuitable, high-risk complex investments to 5 Wisconsin school districts. Stifel and Noack allegedly misrepresented the risks involved in investing $200 million in synthetic collateralized debt obligations (CDOs) and did not disclose certain material facts. The investments proved a “complete failure.”

The Five Wisconsin School Districts:
• Kimberly Area School District
• Kenosha Unified School District No. 1
• School District of Waukesha
• School District of Whitefish Bay
• West Allis-West Milwaukee School District

All five school districts are suing Stifel and Royal Bank of Canada in civil court. Robert Kantas, partner of Shepherd Smith Edwards & Kantas LTD LLP, is one of the attorneys representing the school districts in their civil case against Stifel and RBC. Attorneys for the school districts issued the following statement:

“We believe that Stifel, Royal Bank of Canada and the other defendants defrauded the five Wisconsin school districts, along with trusts set up to make these investments. In 2006, these defendants devised, solicited and sold $200 million 'synthetic collateralized debt obligations' (CDOs), which were both volatile and complex, to these districts and trusts. While represented as safe investments, these were in fact very high risk securities, which were wholly unsuitable for the districts and trusts. In an attempt to protect taxpayers and residents, the districts hired attorneys and other professionals to investigate the investments and the potential for fraud. Then, with a goal of seeking full recovery of the monies lost in this scheme, a lawsuit was filed in Milwaukee County Circuit Court in 2008 to seek fully recovery of the losses and maintain and protect valuable credit ratings of these districts. To date, more than 3 million pages of documents have been obtained and examined by the attorneys for the districts. The districts also properly reported to the SEC the nature and extent of the wrongdoing uncovered. Over the past year, they have provided the SEC with volumes of documents and information to facilitate its investigation.”

In its complaint filed in federal court today, the SEC says that Stifel and Noack set up a proprietary program to assist the school districts in funding retiree benefits through the investments of notes linked to the performance of CDOs. The school districts invested $200 million with trusts they set up in 2006. $162.7 million was paid for with borrowed funds.

The SEC contends that Stifel and Noack, who both earned substantial fees even though the investments failed completely, took advantage of their relationships with the school districts and acted fraudulently when they sold financial products that were inappropriate for the latter. The brokerage firm and its executive also likely were aware that the school districts weren’t experienced or sophisticated enough to be able to evaluate the risks associated with investing in the CDOs. Both also likely knew that the school districts could not afford to suffer such catastrophic losses if their investments were to fail. Despite this, says the SEC, Noack and Stifel assured the school districts that for the investments to collapse there would have to be “15 Enrons.” They also allegedly failed to reveal certain material facts to the school districts, including that:

• The first transaction in the portfolio did poorly from the beginning.
• Within 36 days of closing, credit rating agencies had placed 10% of the portfolio on negative watch.
• There were CDO providers who said they wouldn’t participate in Stifel’s proprietary program because they were worried about the risks involved.

The SEC claims that Stifel and Noack violated the:

• Securities Exchange Act of 1934 (Section (10b))
• The Securities Act of 1933 (Section 17(a))
• The Securities Act of 1934 (Section 15(c)(1)(A))

The Commission is seeking, permanent injunctions, disgorgement of ill-gotten gains, financial penalties, and prejudgment interest.

Related Web Resources:
SEC Charges Stifel, Nicolaus & Co. and Executive with Fraud in Sale of Investments to Wisconsin School District, SEC.gov, August 10, 2011

SEC Sues Stifel Over Wisconsin School Losses Tied to $200 Million of CDOs, Bloomberg, August 10, 2011

Read the SEC Complaint (PDF)

School Lawsuit Facts


More Blog Posts:
Wisconsin School Districts Sue Royal Bank of Canada and Stifel Nicolaus and Co. in Lawsuit Over Credit Default Swaps, Stockbroker Fraud Blog, October 7, 2008

SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries, Stockbroker Fraud Blog, June 11, 2010

Continue reading "Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts" »

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Posted In: Collateral Debt Obligation , Financial Firms , SEC Enforcement , Securities Fraud , Stifel, Nicolaus, & Co. Inc.

June 11, 2010

SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries

According to local new services, the US Securities and Exchange Commission is asking five Wisconsin school districts for additional information about the $200+ million in synthetic collateralized debt obligations that they purchased through Stifel Nicolaus and Royal Bank of Canada subsidiaries in 2006. The CDO’\s are now reportedlyworthless.

The districts collectively bought the CDOs with $35 million of their own money and more than $165 million borrowed from Depfa bank. Since then, the entire investment has failed. In March, Depfa noticed default on the district trusts which had been established for the investments and took the $5.6 million in interest that had been earned since the purchase was made.

In their 2008 securities fraud lawsuit against the investment firms, the districts accused the defendants of deceptive practices and fraud. School officials contend that they were misled into investing in CDO's because of a Stifel product that was supposed to build trusts for post-retirement teacher benefits. They say that they weren’t told that that they could lose their entire investment because of the 4 – 5% default rate among companies within the CDO. They also contend that they were never advised that their investments included sub-prime mortgage debt, credit card receivables, home equity loans, and other risky investments.

Securities Attorney Robert A. Kantas, who represents the school districts, says the firms should never have sold his clients these CDO's because the trusts weren’t qualified to make the purchases. Kantas notes that the investment was “bad from the beginning,” and he is confident that the districts will win. He says that the investments were apparently set up in a way that allowed Royal Bank of Canada to make money if the districts lost money.

Some following the suit have estimated that the lawsuit will likely not go to a jury trial until 2012. The districts are seeking to recover their entire $200+ million investment, plus costs including legal fees, plus punitive damages and/or three times the amount lost on the investments.

Related Web Resources:
SEC looks into Kimberly School District investment case, Post Crescent, June 10, 2010

Wisconsin School Districts Sue Royal Bank of Canada and Stifel Nicolaus and Co. in Lawsuit Over Credit Default Swaps, Stockbroker Fraud Blog, October 7, 2008

School Lawsuit Facts


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Posted In: Financial Firms , Royal Bank of Canada , Securities Fraud , Stifel, Nicolaus, & Co. Inc.

April 30, 2010

Stifel Reports 80% Earnings Increase During 1st Quarter Even After Disengaging From Broker Recruiting Wars

Stifel Financial Corp. is reporting an 80% increase of earnings during its first quarter, which ended on March 31, compared to last year. Nearly 57% of its operating profit and 64% of revenue came from its global wealth management group. The profit increase came even as the financial firm slowed down its recruitment of new brokers. On its financial adviser roster, just 45 names were added, as Stifel made the decision not to engage in recruitment wars with larger firms that have enhanced their recruiting packages in an effort to bring in new people who can help the firms rehabilitate their reputations in the wake of the 2008 market collapse. Bank of America’s Merrill Lynch, Morgan Stanley Smith Barney LLC, and other investment banks are reportedly offering leading brokers up to 300% of the revenue they produced in the last 12 months.

While Stifel increased its adviser roster by over 500 in 2009, absorbing over 300 advisers from UBS Financial Services Inc.’s wealth management group and 56 retail branches, this year the financial firm seems to be focusing more energy on creating a more balanced revenue mix. By merging (a $300 M deal), with Thomas Weisel Partners Group Inc. Stifel’s retail and investment-banking/capital revenue will be brought into balance.

According to Investment News, Ron Kruszewski, Stifel chief executive and chairman, as saying that the ex-UBS brokers that are now working for Stifel are working at about 80% of their potential. Seeing as many of them started with the financial firm toward the end of last year, it may take a little longer for them to fully transfer their client assets and achieve complete operational efficiency.

Related Web Resources:
Stifel backs off recruiting wars -- and profits soar, Investment News, April 29, 2010

Stifel Financial Corp. Announces First Quarter Results, Marketwatch, April 29, 2010

Continue reading "Stifel Reports 80% Earnings Increase During 1st Quarter Even After Disengaging From Broker Recruiting Wars" »

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Posted In: Stifel, Nicolaus, & Co. Inc.

March 11, 2010

Stifel, Nicolaus, and Co. to Pay Back $78,000 to Missouri Investors for Broker Fraud

Stifel, Nicolaus and Co. Inc. has reached an agreement with Missouri Secretary of State Robin Carnahan over the broker fraud committed by former Stifel securities broker Girard Munsch. As part of the deal, the three Missouri investors will get back $78,000 in commissions that they paid and the broker-dealer will pay over $130,000 in payments, penalties, and costs.

Over three years, Munsch made over 500 trades in accounts owned by three Missouri investors. He has admitted that during some of the transactions, he was the only one to benefit. One investor, Marie Ganninger, says that she started investing with the former Stifel broker after her husband passed away. She chose to go with Munsch because he was the broker of one of her relatives. She will be getting back the commissions she paid.

The state of Missouri went after Stifel for failing to properly supervise Munsch and neglecting to notice or take action when he made unsuitable recommendations and excessive trades.

In 2007, the former Stifel broker entered into a consent order. He was ordered to pay $50,000 in investor restitution for broker misconduct, and his license was suspended. He retired and can no longer work as a broker in Missouri.

Please do not despair if you lost money because of broker fraud. There are legal remedies available that can allow you to recoup your investment losses.

Stifel to return $78,000 to investors, pay $130,000 in penalties, St. Louis Business, March 11, 2010

Consent order in the matter of Girard Augustus Munsch, Jr., State of Missouri

Continue reading "Stifel, Nicolaus, and Co. to Pay Back $78,000 to Missouri Investors for Broker Fraud" »

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Posted In: Broker Fraud , Financial Firms , Stifel, Nicolaus, & Co. Inc.

November 13, 2009

Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million—a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million—that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.

Stifel Nicolaus has retained support staff and 495 financial advisers in the branches. The investment bank has converted some 144,000 accounts with some $16.2 billion in assets under management. This includes money market accounts ($1.7 billion) Reg U and Reg T loans ($204.4 million), and FDIC-insured balances.

UBS was paid $29 million in cash for the financial advisers and branches. It also received $17 million for employee forgivable loans and net fixed assets. UBS is also expected to receive a contingent earn-out payment based on the performances of its financial advisers, now with Stifel, over the first two years.

Our securities fraud lawyers continue to represent clients with ARS claims against broker-dealers that misled them about the risks associated with these investments.


Related Web Resources:
Stifel Financial 3Q Profit Climbs 73%; Results Top Views, Wall Street Journal, November 9, 2009

Stifel, Nicolaus Buys UBS, Dealbreaker, March 23, 2009

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Posted In: Auction-Rate Securities , Financial Firms , Stifel, Nicolaus, & Co. Inc.

November 5, 2009

Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009

St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009

Continue reading "Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members" »

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Posted In: AXA Advisors , Broker Fraud , Financial Firms , Ponzi Scams , Stifel, Nicolaus, & Co. Inc.

October 3, 2009

Colorado Sues Stifel, Nicolaus for Misrepresenting Auction-Rate Securities to Investors

The Colorado Securities Division is suing Stifel, Nicolaus & Co. for securities fraud. State regulators are accusing the broker-dealer of making false assurances to investors about auction-rate securities.

In its Colorado securities fraud complaint, the securities division accused Stifel Nifel, Nicolaus of violating the Colorado Securities Act by allowing investors to think that their ARS-investments would always be liquid, failing to properly supervise sales team members, and making unsuitable investment recommendations to clients.

The Division claims that Stifel, in the role of underwriter, knew that there were liquidity risks linked to ARS but never let its sales force know about them. Stifel brokers allegedly compared ARS to money market funds on a regular basis and sold them as if they were appropriate for cash management purposes. Investors were told they would always be able to access their funds as if it were cash. However, when the ARS market collapsed in February 2008, the Colorado investors that purchased auction-rate securities were unable to get their funds or sell their bonds.

The ARS lawsuit against Stifel, Nicolaus seeks to have the broker-dealer suspended in Colorado. The complaint comes on the same day that the Indiana Securities Division filed its securities fraud lawsuit against Stifel, Nicolaus & Co.

ARS are long-term bonds. They are dependent on the success of a periodic auction for short-term liquidity. The fallout continues from the ARS market collapse and state securities regulators continue to take action against broker-dealers. Our securities fraud law firm has remained diligent in our efforts to help ARS investors whose funds were frozen. Broker-dealers and their employees must be held accountable for securities fraud. Our investment fraud lawyers are committed to helping our clients recover their financial losses.

Colorado securities regulators file complaint against Stifel, Nicolaus, Business Journal, October 1, 2009

Read the press release announcing the charges filed by Colorado Dep't of Regulatory Agencies (DORA), Division of Securities against Stifel, Nicolaus

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Posted In: Auction-Rate Securities , Financial Firms , Stifel, Nicolaus, & Co. Inc.

October 1, 2009

Indiana Accuses Stifel Nicolaus & Co. of Auction Rate Securities Fraud

The Indiana Secretary of State’s Office filed an administrative complaint today accusing Stifel Nicolaus & Co.’s local office of securities fraud, failing to properly train members of its sales team, and failing to disclose risks associated with purchasing auction-rate securities. As a result, some 141 Hoosiers who had invested $54.0 million sustained losses when the ARS market fell apart last year and their securities were frozen.

92 of the ARS investors who were affected were Jeffrey Cohen’s clients. Cohen is the local Stifel office’s managing director. His clients had invested $45 million.

For violating the Indiana Securities Act, the broker-dealer could be ordered to pay a $10,000 fine/violation, as well as restitution to the securities fraud victims. Other states, including Colorado and Missouri, have made similar charges against Stifel Nicolaus.

Colorado’s securities regulator also filed its auction-rate securities complaint against Stifel Nicolaus today alleging that the broker-dealer failed to fully inform local investors about ARS risks. The securities fraud lawsuit also accuses the broker-dealer of violating the Colorado Securities Act, misrepresenting ARS as short-term investments that were liquid, and providing clients with unsuitable recommendations.

Missouri’s complaint, filed in March by Secretary of State Robin Carnahan, claims that over 1,200 investors suffered losses when ARS worth $180 million were frozen.

Auction-Rate Securities
Many investors throughout the US were shocked to discover that the ARS they had purchased were not, as broker-dealers had told them, investments that were liquid like cash. Our stockbroker fraud law firm continues to work diligently with many ARS clients to recover their investments.

Related Web Resources:
Local Stifel office accused of securities fraud, IBJ, October 1, 2009

Colorado charges Stifel unit with ARS sales fraud, Reuters, October 1, 2009

Missouri Secretary of State Robin Carnahan sues Stifel Nicolaus, Daily Record, March 13, 2009


Continue reading "Indiana Accuses Stifel Nicolaus & Co. of Auction Rate Securities Fraud " »

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Posted In: Financial Firms , Stifel, Nicolaus, & Co. Inc.

September 21, 2009

Former Stifel Nicolaus and AG Edwards Stockbroker Sentenced to 21-Months in Prison for Investment Fraud Scam

A former broker who was fired from both AG Edwards, Inc.and Stifel Nicolaus & Co. has been ordered to serve a 21-month federal prison sentence for selling fraudulent investments to Stifel Nicolaus clients. Neil Rolla Harrison told clients that they were investing in commodities futures or the gold market when in fact the stockbroker was using their money to support his drinking and gambling habits.

A federal grand jury indicted the 54-year-old former broker last May. Harrison pleaded guilty to one count of mail fraud. He has been ordered to pay $91,303 in restitution.

It is not clear, however, whether the investment fraud victims will recoup their losses. One of his targets, 67-year-old Ralph Brock, says that because he has worked as a self-employed trucker for most of his life, the only retirement he had was the one he created through investing.

AG Edwards fired Harrison in 2005 after the broker-dealer discovered that he was borrowing money from clients. Stifel Nicolaus hired him soon after even though the broker-dealer knew that AG Edwards had fired him. Stifel Nicolaus fired Harrison when the thefts were discovered.

Brokers are entrusted with the responsibility of handling a client’s finances. Many investors seek the services of a stockbroker because they don’t have the knowledge and experience to make their own investments in a sound manner.

When a broker breaches that duty of care and money is lost it is usually the victims of securities fraud that suffer. This can be devastating—especially for the many clients who rely on their investments to get them through retirement or put their children through school. Any loss as a result of stockbroker fraud is unacceptable.

Related Web Resources:
Former stockbroker gets 21-month sentence, The Telegraph, September 18, 2009

Stifel broker gets jail time for scam, St. Louis Business Journal, September 18, 2009

United States Postal Inspection Service

Illinois Securities Department

Continue reading "Former Stifel Nicolaus and AG Edwards Stockbroker Sentenced to 21-Months in Prison for Investment Fraud Scam" »

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Posted In: A G Edwards , Broker Fraud , Financial Firms , Stifel, Nicolaus, & Co. Inc.

August 3, 2009

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme

The Financial Industry Regulatory Authority has permanently barred a former Stifel, Nicolaus & Co. Inc. and AXA Advisors broker from operating. Kenneth George Neely has admitted to running a ponzi scheme involving clients of both broker-dealers, as well as friends, family members, and fellow church members.

According to federal regulators, Neely acted fraudulently when he induced at least 25 clients to take part in the “St. Louis Investment Club” and invest in “St Charles REIT. Both the investment club and the real estate investment trust are bogus.

To cover up the Ponzi scheme, Neely had investors issue payments to his wife in $2,000 and $3,000 increments so that banks wouldn’t get suspicious when funds were turned into cash. He also created bogus invoices that looked like official ownership certificates for REIT purchases. These certificates listed names of a “President” and a “Secretary" who were both fictitious. Neely promised investors that their investments would be taken care of.

For example, he promised one friend a high return rate on a bogus St. Charles REIT investment. The friend had invested $154,000. Neely would end up returning $10,000 to this person and using the rest of the funds to pay for some of his own personal expenses and debt.

He also persuaded a fellow church member to invest $35,000. He promised a 5% return rate. Small interest payments later dried up and Neely used the balance for his personal spending.

Neely improperly utilized over $600,000 of his investors’ assets. He converted over half the amount to his own use and returned about $300,000 to some investors.

It wasn’t until FINRA spoke with the St. Louis broker about his bogus real estate investment trust that he stopped collecting funds. AXA terminated his employment after he admitted what he'd done to FINRA.

FINRA enforcement chief Susan Merrill says that it is disturbing that in addition to taking advantage of clients at the brokerage firms where he’d worked, Neely also exploited relatives, friends, and acquaintances and took their “hard-earned savings.”

FINRA Permanently Bars Broker Operating Ponzi Scheme Involving Customers of Broker-Dealers, FINRA, July 27, 2009

Former AXA broker barred by FINRA for Ponzi scheme, Reuters, July 27, 2009


Continue reading "FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme" »

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Posted In: AXA Advisors , Broker Fraud , Financial Firms , Ponzi Scams , Stifel, Nicolaus, & Co. Inc.

July 6, 2009

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

According to Stifel Financial Corp., 95% of its clients with frozen auction-rate securities have indicated that they will accept its offer to buy back the investments over a three-year period. Missouri Securities Regulator and Secretary of State Robin Carnahan, however, continues to maintain that the buyback plan is inadequate.

She also disagrees with the broker-dealer’s claim that customers are endorsing the buyback plan by accepting it. Rather, she believes that it is the only option that Stifel has given clients that will allow them to get all of their funds back—and that means that many of them will have to wait three years. Carnahan noted that over 20 other broker-dealers were able to give their clients immediate relief.

Some 1,200 Stifel clients bought ARS before the market collapsed. The firm’s clients currently hold about $170 million in ARS. Some 40% of eligible accounts reportedly were to have received 100% liquidity by June 30. The remaining accounts are to obtain full liquidity by June 2012.

Stifel Chief Executive Officer and Chairman Ronald J. Kruszewski maintains that the broker-dealer did not know that the ARS market was in trouble until it collapsed. This is the main reason that Stifel has given for why it isn’t buying back their clients’ holdings in full the way other brokers have from their clients.

Carnahan’s office, however, alleges that Stifel was aware of the risks involved with investing in ARS and that the broker-dealer should have worked harder to protect investors. Her office sued Stifel in March 2009 over the way the firm marketed ARS and misled investors.

Related Web Resources:
Most Stifel clients accept auction rate securities buyback; Carnahan calls offer ‘inadequate’, St Louis Business Journal, June 23, 2009

Carnahan Sues Stifel Over Auction Rate Securities, iStockAnalyst, March 13, 2009

New Trouble in Auction-Rate Securities, The New York Times, February 15, 2008

Continue reading "Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan" »

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Posted In: Auction-Rate Securities , Broker-Dealers , Financial Advisers , Stifel, Nicolaus, & Co. Inc.

June 25, 2009

Former Stifel Nicolaus and A.G. Edwards Stockbroker Pleads Guilty to Mail Fraud

A former stockbroker that used to work for A.G. Edwards and Stifel Nicolaus has pleaded guilty to mail fraud. Neil R. Harrison, could spend up to 27 months behind bars—although his agreement to repay $85,739, cooperate with police, and lack of a criminal record could help him receive less than the 21-month minimum sentence. Harrison is accused of defrauding clients at two Illinois firms. He solicited investors to place their money in commodities futures and the gold market but instead used their funds for gambling. The mail fraud charge is based on a wire transfer confirmation mailed to a Stifel client.

While this may be Harrison’s first official brush with the law, he was let go from A.G. Edwards in 2005 for failing to cooperate with a probe regarding his efforts to get a loan from a client. A.G. Edwards filed the necessary securities documents regarding his firing. Even though Stifel Nicolaus was aware of Harrison’s background, the broker-dealer still hired him—with a special supervised agreement—just 10 days after A.G. Edwards terminated him.

Stifel would eventually fire the stockbroker in 2008 for “unethical and professional misconduct.” The broker-dealer accused Harrison of soliciting and getting money and personal loans from clients for fraudulent investments.

Per Harrison’s plea agreement: The ex-stockbroker persuaded clients to sign paperwork to open margin accounts without making sure that they had a good understanding of what these accounts were or the interest rates associated with them. He would then direct his broker-dealer to issue wire transfers to the investors’ checking accounts to replace money that was issued to him for the bogus investments. He also made material misrepresentations to clients and prospective investors. He told them they could make a lot of money but they would have to go outside the traditional brokerage account for diversity when making investments.

At least five investors were defrauded.


Related Web Resources:
Ex-stockbroker pleads guilty to mail fraud, The Telegraph, June 23, 2009

Former broker accused of mail fraud, The Telegraph, May 21, 2009

Illinois Securities Department

Continue reading "Former Stifel Nicolaus and A.G. Edwards Stockbroker Pleads Guilty to Mail Fraud" »

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Posted In: A G Edwards , Broker Fraud , Broker-Dealers , Financial Firms , Stifel, Nicolaus, & Co. Inc.

June 1, 2009

Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms

Another state has filed an individual enforcement against brokerage and investment banking firm Stifel, Nicolaus, & Co. Inc. On May 7, Virginia’s State Corporation Commission's 's Division of Securities and Retail Franchising filed its civil lawsuit accusing the broker-dealer of making misrepresentations and false statements related to the sale of auction-rate securities, as well as failing to properly supervise its sales representatives that sold ARS to Virginia residents.

Just this March, Missouri Secretary of State Robin Carnahan had sued Stifel, Nicolaus, accusing the investment firm of making misrepresentations to over 100 ARS clients that were told that the securities were liquid, conservative investments. In May, Carnahan reached an agreement with two Bank of America Corp subsidiaries. Under the agreement, the bank would pay a $1.37 million fine and provide relief to numerous Missouri entities that bought $400 million in ARS.

Meantime, state officials are looking into whether TD Ameritrade Holding Corp., Charles Schwab Corp., and E*Trade Financial Corp also engaged in ARS-related violations. Broker-dealers that have reached preliminary settlements with federal and state regulators over their misrepresentation of ARS to clients include Citigroup Inc., Deutsche Bank AG, Credit Suisse Group, JP Morgan Chase & Co, Goldman Sachs Group Inc., Merrill Lynch & Co. Inc., Royal Bank of Canada, Morgan Stanley, Wachovia Corp, and UBS AG.

Per the agreements, settlement parties would repurchase up to $56 billion in illiquid ARS at par from charities, retail investors, and mid-sized and small businesses, as well as pay $522 million in penalties. The agreements with Bank of America, Wachovia, and Citigroup have been finalized.

Last month, the Financial Industry Regulatory Authority announced final settlements reached with NatCity Investments Inc. of Cleveland (a $300,000 fine), M & T Securities Inc. of Buffalo (a $200,000 fine), M & I Financial Advisors Inc. of Milwaukee (a $150,000 fine), and Janney Montgomery Scott LLC of Philadelphia (a $200,00 fine). FINRA also announced that SunTrust Investment Services Inc. and SunTrust Robinson Humphrey Inc. decided not to finalize their preliminary settlements. FINRA is still investigating both firms’ activities pertaining to ARS.

Related Web Resources:
Virginia sues Stifel, Nicolaus & Co. over auction rate securities, St Louis Business Journal, May 15, 2009

FINRA Announces Agreements with Four Additional Firms to Settle Auction Rate Securities Violations, FINRA, May 7, 2009

Carnahan Finalizes $400 Million Bank of America Auction Rate Securities Settlement, Missouri Secretary of State, May 14, 2009

Carnahan sues Stifel Nicolaus over auction rate securities, St Louis Business Journal, March 12, 2009

Continue reading "Auction-Rate Securities Probes Lead to More Enforcement Actions and Final Settlements with Investment Firms" »

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Posted In: Auction-Rate Securities , Bank of America , Financial Firms , Stifel, Nicolaus, & Co. Inc.

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