Stifel, Nicolaus & Company Inc. Fined $3.6 Million for UIT Fees and Related Supervisory Failures

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In May 2020, FINRA sanctioned Stifel, Nicolaus & Company Inc. to pay $3.65 million for unit investment trust (UIT) violations, including $1.9 million in restitution plus interest to more than 1,700 customers; FINRA also fined  Stifel, Nicolaus & Company Inc. $1.75 million for providing inaccurate information to customers related to rollover costs as well as for supervisory failures related to the rollover fees. According to FINRA, the brokerage firm allowed its brokers to recommend early rollovers of UITs that were costly for clients.

FINRA found that between January 2012 and December 2016, Stifel, Nicolaus & Company Inc. executed $10.9 billion in UIT transactions—$935.2 million of which were early rollovers. FINRA also found that the broker-dealer did not have procedures in place or supervisory systems to monitor the suitability of those early rollovers.

A UIT is an investment company that offers investors shares, or “units,” in a fixed portfolio of securities in a one-time public offering that terminates on a specific maturity date, typically after 15 or 24 months. UITs are usually intended as long-term investments and have sales charges based on the long-term nature of the investments, including an initial and deferred sales charge and a creation and development fee. A broker who recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, which raises suitability concerns.

According to FINRA, “Stifel did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur approximately $1.9 million in sales charges that they would not have incurred had they held the UITs until their maturity dates. In addition, during the same time period, Stifel sent approximately 600 letters to customers that contained inaccurate information or were missing information about the costs incurred by customers in connection with early UIT rollovers or ‘switches.’ On average those letters understated the costs to customers by approximately 49 percent.”

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Stifel, Nicolaus & Company Inc. may be liable for investment or other losses suffered by its customers.

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Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.