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Stifel Nicolaus Fined for "Unsuitable" Sale of Class B Shares

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.