FINRA Fines Stifel $400K for Missing Broker Misconduct
Practice Management>Regulation & Compliance FINRA Fines Stifel $400K for Missing Broker Misconduct In one case, an unnamed broker stole over $100,000 from an elderly customer’s account. Stifel will pay over $400,000 to settle FINRA disciplinary charges that the firm dropped the ball in supervising a registered rep who stole over $100,000 from an elderly customer.
The b/d regulator’s settlement with the St. Louis-based financial services firm details the misconduct of an unnamed rep (given the moniker ‘Broker A’ in the document). According to FINRA, the broker received power of attorney for an unnamed senior customer in 2011 and was allowed to write checks on behalf of the client.
Stifel typically did not allow its reps to serve as power of attorney for non-family members. Still, the firm sometimes made exceptions to the rule, including for Broker A and their senior customer. (Stifel had since ended its policy on exceptions for non-family power of attorney agreements.)
Despite making sporadic exceptions, the firm did not have policies for reviewing accounts when reps acted as a power of attorney. In this case, the firm coded the client’s account as an "employee-related account" because of the broker’s power of attorney, and the firm reviewed it monthly.
However, this review didn’t include the payee for checks from the customer’s account signed by the broker, which means the firm missed (or didn’t follow up on) six checks made payable to the broker or bank accounts he controlled, totaling about $105,000. Stifel later reimbursed the senior client’s estate, according to FINRA.
In May 2019, Stifel came close to catching the misconduct. The firm was amid a retroactive review of all non-family power of attorney relationships and found a $5,000 check from August 2018, payable from the customer’s account to the rep. The broker told Stifel he was reimbursing himself for the client’s nursing home expenses (though this didn’t make sense; as power of attorney, he could write checks directly to the facility).
Stifel closed the investigation, but in December 2019, the broker tried to transfer the remaining balance in the client’s account to himself; Stifel rejected the transaction and found the rep’s misconduct, firing him almost immediately.
The FINRA charges also focused on Stifel’s lapses in overseeing another unnamed broker’s conduct (known as ‘Broker B’ in the settlement). Between August 2017 and June 2018, Broker B recommended more than 100 speculative options trades for a 64-year-old retired teacher with no options knowledge. The client lost 80% of the funds deposited in her account in less than a year before it was closed in July 2018.
Stifel knew about the amount of options trading and asked Broker B about it but didn’t do much further digging. Instead, the firm changed the teacher’s investment objectives from “growth and income” to “speculative/active trading/complex strategies” after speaking to the broker and allegedly suppressed several alerts on the client’s account.
The broker repeated this process with another unnamed client, who closed their account after more than $27,700 in losses after the broker recommended 37 call options. Again, the firm did not respond, according to FINRA.
Additionally, Broker B recommended five customers purchase securities with a falling stock price due to “substantial doubts being raised in public reports about the company’s ability to continue,” according to the settlement. None of the customers had a speculative investment objective.
Though the firm flagged Broker B for purchasing a “collapsing entity,” it didn’t take further steps beyond asking the broker about the customers’ comfort with the recommendations. Eventually, the five customers lost $53,498 because of this trading.
Representatives from Stifel did not respond to a request for comment prior to publication.
In addition to a $400,000 penalty, Stifel was to pay $59,360.43 in restitution (Stifel agreed to the penalties without admitting or denying FINRA’s findings).
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Originally posted on: https://www.wealthmanagement.com/regulation-compliance/finra-fines-stifel-400k-missing-broker-misconduct