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Regulation and Compliance > State Regulation

Stifel Fined $2.5M Over Broker's Shady Trades for Seniors, Church

By Melanie Waddell

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Stifel, Nicolaus & Co. was ordered Monday to pay $2.5 million by Massachusetts’ top securities regulator, William Galvin, for ignoring a former Stifel broker-dealer agent’s questionable trades that resulted in many of his clients — including older adults, nonprofits and a church — to be charged excessive and unauthorized fees.

Secretary of State William Galvin also ordered Stifel to pay more than $700,000 in restitution to affected Massachusetts customers, as part of a consent order the broker-dealer has entered with Galvin’s Securities Division.

Former Stifel broker-dealer agent Joseph Crespi “subjected many of his clients to predatory sales practices over several years, leading to higher commission sales for himself and his employer,” Galvin said Monday in a statement.

The Division’s investigation also found “wide-ranging harm” to Massachusetts customers resulting from “multiple instances of Stifel employees using personal cell phones to conduct business and distributing retail communications in violation of firm and regulatory requirements,” Galvin’s office states.

The order notes that Stifel has been the subject of “several regulatory actions over the past five years concerning its failure to supervise employees or deficiencies with its internal controls,” paying more than $14 million in fines, civil penalties, disgorgement and restitution.

Crespi was registered with Stifel from 2018 to 2022. He was “Stifel’s sixth highest revenue-producing employee in New England as of June 30, 2019 (as considered year-to-date) and continued to be a top producing agent of Stifel thereafter,” according to the consent order.

A report from the firm’s compliance department in early 2020 found “elevated” levels of fees and commissions paid to Stifel on several accounts due to “the active trading strategy utilized in these accounts,” according to the order.

The report also found that these accounts underperformed both the market and those of other Stifel brokers, and that Crespi’s trades triggered an internal alert system more than those of any other employee in the same 12-month period.

“Despite repeated warnings by Crespi’s own branch manager,” Galvin’s office said, “Stifel failed for years to discipline Crespi or take any meaningful actions to correct his behavior.”

Galvin’s office said that internal Stifel communications examined by the Securities Division showed that “the broker-dealer was well aware of Crespi’s questionable trade practices, with one Stifel employee stating that Crespi would continue to attempt to violate certain rules, as ‘spots of a leopard do not change.’”

The consent order details numerous times that Crespi was suspected of making trades not authorized by clients, including at least one attempt to trade in a deceased client’s account. Stifel did not allow the trade to be processed, according to the order.

Crespi, Galvin’s office said, “took steps to attempt to disguise his actions, though his branch manager and other internal systems repeatedly flagged his transactions for review. Nonetheless, Stifel allowed the misconduct to continue for more than three years” before terminating him.

“As the size of the fine illustrates, I will not tolerate repeated rule-breaking by firms that enact toothless compliance and supervisory systems, while placing their own bottom line above investor protection,” Galvin said. “This firm failed its customers when it dragged its feet for years, avoiding taking meaningful action to protect their best interests.”

In addition to the fine and restitution for Crespi’s clients required by the consent order, Stifel has also agreed to provide restitution for Massachusetts customers who were charged commissions on equity transactions in excess of 5%, Galvin’s office said.

Stifel management has also been ordered to certify changes to its supervisory and compliance apparatus, concerning brokerage sales practices.

The consent order, which was filed over the weekend, is the third enforcement action the Securities Division has taken against Stifel over the past five years. The Missouri-based broker-dealer has previously been ordered to pay fines totaling $400,000 and provide restitution to Massachusetts customers, stemming from consent orders filed in 2018 and 2021.

Melanie Waddell

@Think_MelanieW

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