Stifel, Nicolaus, & Co. Inc.

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.

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Illinois Securities Department
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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 ›

Articles Posted in Stifel, Nicolaus, & Co. Inc.

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

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