December 6, 2023

Massachusetts’ top securities regulator says his $3.2 million enforcement case against a former Stifel Nicolaus broker is a good example of why he remains skeptical when wealth managers insist they take regulation seriously.

“There is a complete lack of regulation in this situation,” said Massachusetts Commonwealth Secretary William Galvin, “although we often hear from companies that they do have regulatory plans.”

Calvin refers to his The office ordered Monday that St. Louis-based Stifel Nicolaus Paying a $2.5 million fine and more than $700,000 in client restitution for the conduct of one of its former brokers, Joseph Crespi. Crespi, who worked at the Stifel branch in Staunton, Mass., from December 2018 to February 2022, is accused of a long list of violations, including excessive trading in client accounts and making payments to elderly clients, churches and Nonprofits overcharge.

Galvin’s office’s investigation into Crespi’s conduct revealed that in many cases his supervisors had reason to suspect but failed to take remedial action. According to Galvin’s office, his unauthorized transactions included one case in which he traded in the account of a deceased client.

During Stifel’s tenure, Crespi was the subject of four internal reports. According to Galvin’s office, that was ample evidence that his supervisors were aware of the cause for concern.

The first of these reports, from January 2020, found that his Stifel transactions had generated more than $1.2 million in revenue and triggered 135 internal alerts over the past 12 months. During that time, the 74 accounts he managed had an unusually high return on assets of more than 2%, meaning the value of assets flowing back to Stifel as a percentage of their value.

According to Galvin’s office, the main reason for the high numbers was “aggressive trading strategies,” although the accounts generally underperformed the market. Of these 74 accounts, 63 had turnover of at least 50% of the portfolio over a 12-month period, 23 had turnover of 100%, and four had turnover of more than 150%.

A follow-up report in May 2020 looked at Crespi’s trades in his 20 most profitable accounts. According to Galvin’s office, the investigation found that the average age of the account holder was 70, and his trades generated unrealized losses of $820,000.

After a branch manager, who was not named in Galvin’s complaint, found out he had lied about the transaction, she warned him that if he committed any more violations, “it’s over.” A senior regulatory official, also unnamed, later After canceling one of his deals and warning the rest of the company that he was going to “try again with all his family accounts,” “Leopard Print” wouldn’t change.

Despite the red flags, as of June 30, 2019, Crespi was Stifel’s sixth most productive employee in New England, but his contributions were recognized in early 2021 and he was invited to an awards event. He was fired more than a year later, but not before two other internal reports were sparked by his actions.

Galvin, who earned a reputation as one of the toughest state securities regulatorssaying Stifel’s lack of action after all the red flags only made him more skeptical of the company’s claims about internal oversight and enforcement.

“I wish I could say this is not a unique case or a recurring theme in the financial services industry,” Calvin said.

A spokesman for Stifel Nicolaus declined to comment.

This wasn’t the first time Stifel had caught Galvin’s attention. It reached a $300,000 settlement in December 2018 for failing to oversee representatives of the Massachusetts branch. It was also ordered to pay a $100,000 fine in March 2021 for failing to supervise broker-dealers who recommended inappropriate precious metals investments.

Michael Edmiston, a securities attorney at Jonathan W. Evans & Associates in Studio City, Calif., and past president of the Public Investors Lawyers Association, said Galvin’s skepticism of the industry seemed It makes sense.

“Are cases like this only in Massachusetts?” he said. “That doesn’t seem likely. That’s what bothers me.”

Edmiston said he was well aware that Stifel Nicolaus viewed compliance as a cost of doing business.

“They see brokers as profit centers,” he said. “Profits trump investor protection in this case.”

Leila Shaver, founder of My RIA Lawyer in Atlanta, which represents brokerages and investment advisors, acknowledged Galvin’s reputation as a strict enforcer of securities laws.

“This has sometimes led to harsh penalties and an overzealous pursuit of well-meaning advisors who really did their best to obey state law,” she wrote in an email. “In this case, though, he was doing the right thing. .”

Regulators, she said, “are often tired of companies talking. They want to see action.”

Crespi’s dismissal from Stifel Nicolaus in early 2022 is not the end of his career in the brokerage industry. According to his BrokerCheck page, Next, he came to Ameriprise Financial Services, where he remained until November 2022, before being fired following an “internal review of his conduct related to conduct outside the scope of his duties.”

Before joining Stifel Nicolaus, Crespi spent 12 years at Merrill Lynch. During that time, he was the subject of three client disputes. One was from a client who was dissatisfied with the performance of her investments, and the other was from an unauthorized transaction. Merrill has denied all three complaints.