Stifel Nicolaus and its Stifel Independent Advisors affiliate, both Stifel Financial Corp. subsidiaries, have agreed to pay roughly $2.3 million in fines and restitution to settle misconduct allegations involving sales of complex exchange-traded funds that were intended to be held only a short time.
Due to a lack of oversight, the firm's representatives were routinely recommending holding the funds for far longer, resulting in nearly $1.3 million in customer losses in 381 accounts, according to the Financial Industry Regulatory Authority.
FINRA this week released the letter in which Stifel consented to FINRA's findings, without admitting or denying them, and agreed to be censured, pay $1 million in fines and make almost $1.3 million in restitution plus interest to customers.
Repeated Failures
From June 2014 to March 2018, Stifel's supervisory system was inadequate to meet the firm's compliance with suitability obligations in connection with recommending non-traditional exchange-traded funds and other non-traditional exchange-traded products to clients, according to FINRA.
This failure occurred despite the Stifel firms in January 2014 signing a similar letter and then taking steps to address their supervision of complex NT-ETP sales, according to the new letter of acceptance, waiver and consent.
In the earlier case, FINRA found Stifel violated industry rules by failing to establish and maintain supervisory systems designed to achieve compliance with suitability obligations in connection with transactions involving non-traditional ETFs. The firms consented to a censure, a $550,000 collective fine and to paying $474,613 in restitution to affected customers at that time.
"During the relevant period, Stifel Nicolaus and SIA … again failed to establish, maintain and enforce supervisory systems, including written supervisory procedures (WSPs), reasonably designed to achieve compliance with their suitability obligations in connection with transactions involving NT-ETFs and other non-traditional exchange-traded products," the consent letter states.
Complex Products
"NT-ETPs are complex products that are designed to be held for only short periods of time, typically a single day or a single month," FINRA said. "Stifel failed to take reasonable steps to detect and address hundreds of potentially unsuitable recommendations that customers buy and hold NT-ETPs for longer periods of time than they were designed to be held, resulting in realized losses for customers."
The regulator added that Stifel violated FINRA and National Association of Securities Dealers rules.
