Stifel Nicolaus Fined for "Unsuitable" Sale of Class B Shares
April 23, 2001
NASD Regulation, the regulatory arm of the National Association of Securities Dealers of Washington, D.C., announced last week that it had censured and fined asset manager Stifel, Nicolaus & Company of St. Louis and two individuals in connection with the illegitimate sale of class B mutual fund shares.
NASD Regulation found that Michael Grimes, an employee of Stifel, made unsuitable sales totaling $7 million to 44 customers between June 1996 and May 1998, according to the announcement.
In one instance, Grimes recommended and sold over $250,000 worth of class B shares to each of 15 customers. The purchase amounts exceeded the fund's Class B maximum purchase limit and NASD Regulation determined that Class A shares, which were available to the customers, would have been much more cost-effective for them, according to the announcement.
Stifel and Grimes earned over $290,000 in commissions from those sales, which would have been less than half of that if Class A shares had been sold instead, according to NASD Regulation. The company failed to supervise by not having a system in place to detect when a sale exceeded a fund's purchase limit, according to NASD Regulation.
Grimes has been suspended for 30 days and fined $30,000, according to the announcement. William Lasko, Grimes' supervisor, has been suspended for 10 days in a supervisory capacity, and was fined, together with the company, a total of $25,000. In addition, as part of the settlement, Stifel has agreed to exchange all of the Class B shares sold for Class A shares at no charge. The cost of that exchange would be $225,000 if all of the customers make the exchange, according to the announcement.