Stifel Financial Corp. said Wednesday that a FINRA arbitration panel ordered its subsidiary Stifel, Nicolaus & Co. to pay approximately $132 million, including punitive damages and attorneys’ fees, in connection with allegations regarding investment recommendations.
David Janetti and his family were encouraged to put their retirement savings into structured notes, "to go on margin," according to Jeff Erez, the attorney for the Janetti family. The investments in structured notes resulted in losses of "over 65% to 70%" because of the use of leverage, Erez said.
The broker, Chuck Roberts of Miami, has multiple complaints against him, with 15 still pending.
"There was a huge issue" with Roberts texting clients, according to Erez. "This broker had a significant amount of text messaging about products, about the investment and investment strategies" which revealed his misleading sales tactics.
According to the FINRA award, the claimants allege breach of fiduciary duty; negligence; negligent supervision; fraud; breach of contract; and violation of the Florida Securities and Investor Protection Act involving investments in structured notes.
"Stifel plans to seek judicial review of this outsized award, which is supported by neither the facts nor the law," the company said in a statement.
"The claims were brought by a sophisticated family of experienced and aggressive investors who understood the risks involved, participated in the selection of investments, monitored them closely and only complained after incurring losses," Stifel said.
Roberts' "egregious conduct," the FINRA award states, included but was not limited to: over concentration of the Janetti family's accounts in structured notes and over concentration in limited industries; disregarding the investment philosophy in the Janetti family's Solutions Account; placing his financial interest ahead of the clients' interests; and permitting/encouraging leverage absent a reasonable basis to believe the Janettis had the financial ability to meet such commitments.
The order also said Roberts permitted and encouraged offering of “custom” structured note products via texts in violation of the Securities and Exchange Commission recordkeeping requirements, which texts contained inaccurate and misleading terminology.
Stifel agreed to pay a $35 million fine to the SEC over off-channel communications in September.
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