Finra to probe Thomas Weisel over brokers’ $15.7M in auction-rate sales

Thomas Weisel Partners Group Inc., the San Francisco-based investment bank, faces a regulatory probe over the sale of $15.7 million in auction-rate securities as the market neared collapse.

The Financial Industry Regulatory Authority alleges a former employee sold auction-rate securities to three clients in January 2008, according to a May 10 filing from Weisel. The probe probably won’t affect the company’s $318 million sale to Stifel Financial Corp., Weisel said in the filing.

“We intend to defend the Finra proceeding vigorously,” the company said in the filing. Spokeswoman Rosemary C. Smith declined in an e-mail to comment further.

Thomas Weisel employee Stephen Brinck was “stuffing” auction-rate securities into client accounts without getting their permission, according to Finra documents. The sale, done to raise cash for paying bonuses, occurred “only days” after Brinck and the company told customers they were selling auction- rate securities from all accounts amid concerns about the market, Finra said in Brinck’s broker record.

“Mr. Brinck emphatically denies the allegations of the Finra staff,” said Barry Goldsmith, Brinck’s attorney at law firm Gibson Dunn in Washington. “He looks forward to a hearing on the matter.”

State regulators and the SEC have forced financial companies to buy back more than $50 billion in auction-rate securities to settle claims that the firms falsely touted them as safe, cash-like holdings. Weisel said its securities were repurchased from the customers at par.

Auction-rate securities are long-term bonds or perpetual shares with interest rates adjusted periodically through a dealer-run bidding process. The market collapsed in 2008 after dealers withdrew support amid the credit crisis, leading to hundreds of failed auctions, higher borrowing costs and thousands of investors stuck with securities they couldn’t sell.

Thomas W. Weisel founded the company in 1998 at the height of the Internet boom. In March, the firm said that it had set aside $4 million to cover penalties related to the probe.