Business torrents

Investment brokerage firm Stifel, Nicolaus & Co. will pay $1.1 million to settle Missouri regulator’s allegation that the firm failed to reasonably supervise a former employee who ran a pyramid scheme.

The former stockbroker, Kenneth Neely, worked for St. Louis-based Stifel in its St. Peters office from October 2002 until January 2007 and later worked at another broker-dealer, AXA Advisors in Clayton, from December 2007 to July 2009.

In November 2009, the Missouri Commissioner of Securities accused Neely of committing multiple violations of selling unregistered and nonexempt securities, transacting business as an unregistered agent and making untrue statements in connection with the sale or offer of securities in a St. Charles real estate investment trust and a fraudulent investment club.  

According to the state of Missouri, Neely told friends and church members that his investment club would pay up to 20 percent in interest a year, however he failed to tell the investors that the securities were unregistered. He did this when working at Stifel and later at Axxa, the state said.

Neely was convicted in February 2010 on mail fraud charges and sentenced to 37 months in prison. He is serving his sentence at a federal correctional facility in Indiana.

Today, the Missouri Secretary of State’s office announced Stifel’s settlement after a two-year-long investigation by the Enforcement Section of the Missouri Securities Division. The Stifel “failed to reasonably supervise an agent who operated a criminal investment scheme while at the firm” according to the state’s consent order.

“These events occurred more than five years ago. We welcome the opportunity to put this matter behind us,” the company said in a press release no fax payday loan. “All of the affected clients will receive restitution … We would note that Neely’s illegal activities occurred outside the scope of his employment with Stifel.”

While agreeing to the facts surrounding the case, Stifel neither admits nor denies the regulator’s allegations, the consent order said.

According to the state, Stifel failed to detect or investigate red flags during Neely’s employment, including a customer’s check sent to Neely’s home address and a customer’s concerns relating to Neely’s investment club. The state found that Stifel failed to reasonably supervise Neely, his private securities transactions and emails.

“Every firm has a duty to supervise and to take steps to detect fraudulent activity by its agent, and this action reinforces that investors should always exercise caution when looking at potential investments,” Missouri Secretary of State Robin Carnahan said in a statement.

Stifel will pay $531,385 in restitution and interest to 10 investors in Missouri, California, Florida and Maryland. Additionally, Stifel will pay $500,000 to the Missouri Investor Education and Protection Fund and $70,000 for the costs of the Securities Division’s investigation.

As part of the settlement, Stifel’s registration with the state is censured, and the firm is required to hire a consultant to study its supervisory and compliance activities. A report from the consultant is due in three months.

New York-based AXA, Neely’s other former employer, signed a similar consent order with the state in December 2010.

Source