Charge against Thomas Weisel won’t derail deal, says Stifel CEO

Stifel Financial Corp.’s purchase of Thomas Weisel Partners will not be affected by a charge that Weisel “stuffed” auction-rate securities into client accounts to help pay firm bonuses, Stifel CEO Ron Kruszewski said today.
“I was fully aware of the situation,” Mr. Kruszewski said of the charge filed against Thomas Weisel by the Financial Industry Regulatory Authority Inc. “It has no impact on the transaction.”
The Stifel chief executive made the comments while attending the Macquarie Capital 2010 global securities industry conference in New York.
Stifel, which is based in St. Louis and operates a retail brokerage as well as an investment banking business, expects to close its all-stock deal with the West Coast investment bank this quarter, Mr. Kruszewski said. The deal is valued at about $318 million.
Mr. Kruszewski said that while he doesn’t know “all the facts” about the Finra charge — which Weisel said it will “vigorously” contest — he is confident that Weisel clients were made whole.
“I wouldn’t condone what happened,” he said, but “there’s been no money lost.”
What happened, according to Finra, is that former Weisel employee Stephen Brinck sold auction-rate securities to three clients in January 2008. The complaint, which was detailed in a May 10 filing by Weisel, alleges that Mr. Brinck was “stuffing” auction-rate securities into the accounts that the firm managed for clients without their permission to help raise cash for paying bonuses.
The alleged action occurred “only days” after Mr. Brinck and the company told customers they were selling auction-rate securities from all accounts amid concerns about the market, Finra said in his broker record.
Separately, Mr. Kruszewski repeated that Weisel, which has 1,900 brokers and last year bought 56 retail branches from UBS AG’s U.S. retail brokerage business, won’t compete with wirehouses to recruit big producers “when the market is as heated as it is today.”
Stifel competes with registered investment advisers to attract breakaway brokers from wirehouses, he said, noting that the two models are very different and attract different people. But Mr. Kruszewski used his soapbox to note that fee-only RIAs have several disadvantages, including having to pay directly for their business expenses and lacking access to inventories of municipal bonds and other securities that broker-dealers have from underwriting and other businesses in which they act as principals.
“We keep you out of the hassle of the RIA business,” he said at the conference.
Mr. Kruszewski also forecast that regulation for RIAs will increase proportionally more than it will for regional brokerage firms.
“There’s going to be a lot more regulation relative to us,” he said. “We’re very well positioned.”

[This story was supplemented with reporting from Bloomberg]

Related Topics: Stifel Financial Corp.