Stifel to pay $3.2 million over former broker’s ‘predatory sales’

Stifel Nicolaus & Co. will pay a $2.5 million fine and $700,000 in customer restitution over alleged predatory sales practices by one of its former brokers, Massachusetts Secretary of the Commonwealth William Galvin announced Monday.

Stifel “ignored a series of red flags that warned that elderly Massachusetts residents, non-profit organizations and churches were being charged excessive and unauthorized fees, due to the actions of one of its agents,” Galvin’s office stated. In one case, a nonprofit’s account generated more than 4% in fees and commissions for the agent and the firm.

The broker, Joseph Crespi, worked for Stifel in Taunton, Massachusetts, from late 2018 to early 2022 and had previously spent more than a decade at Merrill Lynch. After leaving Stifel last year, Crespi worked for Ameriprise before voluntarily resigning in November amid a suspension and internal review for allegedly working “outside the scope of his duties,” according to Finra records.

At Stifel, Crespi allegedly made unauthorized trades in multiple client accounts, bringing in high commissions in the process, Galvin’s office stated. In one such case, a trade was reportedly made on behalf of a deceased client.

“Crespi took steps to attempt to disguise his actions, though his branch manager and other internal systems repeatedly flagged his transactions for review,” the office said in the announcement. “Nonetheless, Stifel allowed the misconduct to continue for more than three years before terminating the agent.”

Crespi, who in mid-2019 was the firm’s sixth-highest revenue-producing agent in New England, triggered Stifel’s internal alerts system numerous times. That included selling a long-term unit investment trust less than a year ahead of its maturity and selling a client’s mutual fund shares with a 4.24% front-end sales charge less than two months after buying them.

A representative for Stifel did not immediately respond to a request for comment. Contact information for Crespi was unavailable as of publication time.

At the time he was hired at Stifel, Crespi had three customer complaints on his Financial Industry Regulatory Authority Inc. record, all of which had been denied by the self-regulatory agency.

An internal compliance report in early 2020 found that Crespi’s accounts had generated $1.2 million in commission and fees over the prior 12 months. His top 20 producing accounts had returns on assets of 1.82%, and 74 of his clients’ accounts had an ROA of over 2%, according to Galvin’s office. His trading had triggered 135 alerts within the firm, which was the highest number among Stifel employees during that time.

“The underlying cause of the elevated ROAs [was] the active trading strategy utilized in these accounts,” according to the internal report cited by Massachusetts. Those accounts significantly underperformed the market and the firm’s private client group.

“Of the 74 accounts with an ROA above 2%, 63 accounts had portfolio turnover of at least 50%, 23 accounts had portfolio turnover over 100% and four accounts had portfolio turnover over 150%,” the consent order stated.

The $700,000 Stifel agreed to pay in customer restitution will go to clients who were charged more than 5% commissions on equity transactions.

In addition to the investigation’s reports on Crespi, the Commonwealth found “wide-ranging harm to Massachusetts customers,” which included “multiple instances of Stifel employees using personal cell phones to conduct business and distributing retail communications in violation of firm and regulatory requirements.”

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Related Topics: Churning, Massachusetts Securities Division, Stifel Financial Corp., William Galvin