Following is a roundup of recent regulatory actions by SEC and FINRA.
SEC Charges Stifel, Nicolaus and Former Executive With Fraud in Sale of CDO-Linked Notes
The SEC on August 10 charged St. Louis-based brokerage firm Stifel, Nicolaus & Co. and former Stifel Senior VP David Noack with defrauding five Wisconsin school districts by selling them what the SEC charged were “unsuitably risky and complex investments funded largely with borrowed money.”
In the complaint, filed in federal court in Milwaukee, the SEC alleges that Stifel and Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs).
The SEC charges that Stifel and Noack misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, according to the SEC, “the investments were a complete failure, but generated significant fees for Stifel and Noack.” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement that the charge should be “a teaching moment for sellers of complex financial products.”
FINRA Fines Citigroup $500,000, Saying Sales Assistant Preyed on Elderly, Misappropriating Funds
FINRA announced August 9 that it had fined Citigroup Global Markets Inc. $500,000 for failure to supervise a former registered sales assistant in its branch office in Palo Alto, Calif.
Tamara Moon was suspended in August for allegedly misappropriating $749,978 from the accounts of 22 elderly and ill clients, falsifying account records and engaging in unauthorized trades within client accounts. Citibank neither affirmed nor denied the charges in concluding the settlement, but consented to the entry of FINRA’s findings.
According to FINRA, Moon took advantage of supervisory lapses to siphon off funds from the accounts of vulnerable clients and even her own father. FINRA is still investigating individuals involved in her supervision, and said that numerous red flags should have resulted in further inquiries. Those inquiries, it said, would have revealed what Moon was doing.
SEC Charges Former Investment Fund Employee With Insider Trading in Marvel Stock Prior to Disney Deal