Stifel Financial: A Broker's Theft of Client Money

| About: Stifel Financial (SF)

Stifel, Nicolaus & Company (NYSE:SF) [$47.19 0.00%, market cap: $739.2M] has a reputation as a straight-shooting company. The regional brokerage, based in St. Louis, avoided accusations of biased stock research that ensnared many other brokerages at the time of the tech-stock bust. The company has not previously seen any of its Missouri brokers charged with securities violations by the state Securities Division. But all is not well with the company.

In fact, Stifel, Nicolaus has recently shown that it has little concern for its brokerage clients, beyond its desire to extract as much money as possible from them. One of the company’s brokers, Girard Augustus Munsch Jr., was recently sanctioned and fined by the Missouri Securities Division for excessive trading in client accounts. How excessive?

One client, an 81-year old with a net worth below $250,000 and a liquid net worth under $100,000 (according to brokerage documents), paid $63,861 in commissions over three years on a total of 262 stock trades. In his deposition, the broker (Munsch) stated that for many of the trades, he was the only one to benefit. In other words, the trades were executed solely to garner trade commissions.

Another client, 72-years old when the client began with Munsch, had 122 stock trades over three years in her account, generating $32,389 in commissions for Stifel, Nicolaus. According to brokerage documents, this client had liquid assets of under $100,000. When interviewed by securities regulators, the client stated that she wanted to keep her money in mutual funds and to avoid high risk stocks. Girard Munsch acknowledged that he was was aware that he was the only beneficiary of many of his client’s trades, and that did not bother him.

Stifel’s Culpability

There are of course bad apples in every bunch. But Stifel, Nicolaus showed willful negligence and a casual disregard for the financial well-being of its clients in how it managed Munsch. Back in 2000 Munsch was put under heightened supervision because of customer complaints of unauthorized trading. Due to client complaints of unsuitable investments, Munsch was again put on heightened supervision in March of 2003 and 2004. Munsch’s supervisor, while requiring a phone log to make sure that he was acting appropriately, never checked that log or instructed Munsch in completing the log. Evidently it takes more than repeated mistreatment of clients to get a broker fired from Stifel.

The Punishment

The punishment meted out by the Missouri Securities division is of course insufficient. Munsch should be barred from working as a broker. Instead, he has to be closely supervised, and must pay a meager fine of $105,700. For a successful broker, such a sum is far less than one year’s salary.

Despite failing completely to supervise Munsch and to fire him after earlier violations of the law, Stifel, Nicolaus gets off without a fine. In this case, a fine of $10 million would have been appropriate. However, the broker did one thing right: When I checked with Stifel, Nicolaus, I was told that Munsch had “retired.”

Disclosure: I have no position in any company mentioned.

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Tagged: , Investment Brokerage - Regional
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