Stifel Nicolaus & Co. will pay $1.1 million to settle allegations by the state of Missouri that the St. Louis-based investment brokerage inadequately supervised a stockbroker who defrauded clients through a pyramid scheme.
Secretary of State Robin Carnahan said the settlement calls for Stifel to pay restitution and interest of $531,385 to 10 investors from Missouri and three other states. It also requires the company to pay $500,000 to the Missouri Investor Education and Protection Fund, and $70,000 for the cost of the investigation by the Missouri Securities Division.
"Missouri investors deserve to know their savings are being handled properly, regardless of whether they use a nationally known firm or a local broker," Carnahan said in a statement. "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."
Stifel noted the events occurred more than five years ago.
"We welcome the opportunity to put this matter behind us," the company said in a statement Wednesday.
Kenneth Neely worked for Stifel's branch office in the St. Louis-area town of St. Peters from October 2002 until he resigned in January 2007. He then worked at AXA Advisors in St. Louis County from December 2007 to July 2009.
He was convicted of federal mail fraud charges in February 2010, and is serving a 37-month sentence at a prison in Indiana.
The state investigation began after a complaint from an investor. Carnahan said Neely sold shares in a fraudulent real estate investment trust. The sales were not through Stifel, although the transactions were made while he was employed at Stifel and AXA Advisors.
The statement from Stifel noted that Neely's illegal activities "occurred outside the scope of his employment with Stifel."
Still, the state Securities Division concluded after a two-year investigation that Stifel failed to detect and respond to Neely's questionable activities _ outside business ventures, private security transactions, client account distributions, and customer concerns about their accounts.
The state said Stifel also failed to produce records sought during the investigation in a timely matter, and failed to properly maintain required documents.
The consent order said Stifel agreed to the facts in the case but neither admitted to nor denied the allegations.