Iorio Altamirano LLP is investigating claims on behalf of Stifel, Nicolaus & Company customers who invested in Unit Investment Trusts (UITs). If you have lost money with Stifel, Nicolaus & Company, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
Stifel and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on May 27, 2020, over allegations that between January 2012 and December 2016, Stifel violated FINRA rules. Specifically, that it:
- Failed to establish and maintain a supervisory system, and failed to establish, maintain, and enforce written supervisory procedures (“WSPs”) that were reasonably designed to achieve compliance with FINRA’s suitability rule as it pertains to early rollovers of UITs.
- Stifel sent nearly 600 “switch” letters to customers containing inaccurate or missing information about the costs incurred as a result of early rollovers of UITs.
As part of the AWC, Stifel was censured and agreed to a fine of $1.75 million. Stifel also agreed to pay over $1.89 million in restitution to customers.
Stifel is a full-service broker-dealer, with approximately 4,968 registered representatives and 431 branch offices. The firm is headquartered in St. Louis, Missouri, and has been a FINRA member since 1936.
What is a UIT?
Unit Investment Trusts (UITs) sell investors shares or “units” in a fixed portfolio of securities through a one-time public offering. UITs are considered long-term investments that mature on a specific date; generally, after 15 or 24 months. Once the UIT matures, the underlying securities are sold, and the proceeds are paid to investors.
A UIT’s portfolio is passively managed between the trust’s inception and its maturity date. UIT sponsors often offer UIT product lines in successive “series.” These new series coincide with the maturity date of prior series. Successive series of UITs tend to have the same or similar investment objectives and investment strategies as the prior series, despite a change in the underlying securities that make up the fixed portfolio.
Investors can expect to pay various upfront sales charges and fees, including an initial sales charge, a deferred sales charge, a creation and development fee (C&D fee), and a fee for annual operating expenses.
A broker recommending the sale of a customer’s UIT before its maturity date and who then uses the sale proceeds to purchase a new UIT would cause their customer to incur greater sales charges than if the customer held the UIT to maturity. As a result of their long-term nature, structure, and costs, short-term trading of UITs may be unsuitable.
Stifel Failed to Reasonably Supervise Trading of UITs
The AWC indicates that Stifel executed nearly $10.9 billion in UIT transactions generating approximately $206.3 million in sales charges.
- $935.2 million represented transactions in which UITs were sold before their maturity dates, and customers used some or the entire proceeds for early rollover purchases into new UITs.
- $186.7 million represented transactions in which UITs were sold before their maturity dates, and customers used some or the entire proceeds for series-to-series early rollovers (i.e., purchasing a subsequent series of the same UIT).
Further, FINRA alleges that Stifel failed to establish and maintain a supervisory system, and to establish, maintain, and enforce written supervisory procedures (WSPs) reasonably designed to achieve compliance with FINRA’s suitability rule as it pertains to early rollovers of UITs.
Stifel’s WSPs referenced a “UIT Switch Letter” that representatives could use when a customer sold a UIT position prior to maturity to buy another UIT or mutual fund. The firm’s WSPs, however, did not provide guidance to Stifel supervisors regarding how to monitor for potentially unsuitable patterns of early rollovers or when switch letters should be sent to clients.
Other issues were related to Stifel’s Switch Alert system, which failed to flag UIT switches. Compliance discovered that the Switch Alert was not functioning as intended; despite this knowledge, Stifel did not inform its branch managers who were responsible for reviewing the Switch Alert system. Stifel’s compliance developed an alternative surveillance system, which FINRA found was not reasonably designed to detect unsuitable UIT switches because it only flagged UITs that were held for less than a year even if the UIT had a long-term maturity date. This alternative system too stopped functioning as intended.
As a result, Stifel failed to identify that firm representatives recommended potentially unsuitable early rollovers, including series-to-series early rollovers. These rollovers caused customers to incur over $1.89 million in sales charges that would not have been incurred had customers held the UITs until their maturity dates.
Stifel Sent Switch Letters to Customers Containing Inaccurate Information
Stifel sent more than 1,200 switch letters in connection with early UIT rollovers but failed to verify the accuracy of the information provided to customers, apart from ad hoc reviews. Stifel’s reviews failed to identify that nearly 639 of the 1,200 UIT switch letters either contained inaccurate information about the costs incurred by customers or understated sales charges in connection with the switches or failed to specify the costs.
The 639 switch letters disclosed sales charges of approximately $330,440. However, the actual sales charges incurred by customers were more than $1.24 million.
A FINRA restitution order does not preclude investors from pursuing their own claims to seek restitution or other available remedies. Investors harmed by Stifel’s failures may have a claim against the firm.
This blog previously published a related post involving a former Stifel broker, Kurt Gunter. It can be found here. Mr. Gunter was suspended by FINRA for short-term trading of UITs in customer accounts.
If you have lost money with Stifel or a Stifel broker, contact New York securities arbitration lawyer Jorge Altamirano of Iorio Altamirano LLP at firstname.lastname@example.org or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.