NASD Regulation Censures and Fines Stifel, Nicolaus & Company, And Two Individuals for the Unsuitable Sale of Class B Mutual Fund Shares

Apr 18, 2001, 01:00 ET from NASD Regulation, Inc.

    WASHINGTON, April 18 /PRNewswire/ -- NASD Regulation, Inc. today announced
 that it has censured and fined Stifel, Nicolaus & Company, Inc. of St. Louis,
 MO, and two individuals, Michael G. Grimes and his supervisor, William J.
 Lasko, for violating NASD rules in connection with the sale of Class B mutual
 fund shares.  NASD Regulation found that between June 1996 and May 1998,
 Grimes made unsuitable sales totaling over $7 million to 44 customers in Class
 B mutual fund shares, and that Lasko and the firm failed to supervise Grimes
 with respect to these unsuitable sales.
     As part of a settlement with the NASD, Stifel has agreed to exchange the
 Class B shares sold to these customers for Class A shares at no charge.  The
 cost of this restitution offer, should every customer make the exchange, is
 approximately $225,000, which will be paid jointly by Stifel and Grimes.
     Mutual funds can be offered for sale to investors in different classes.
 In this case, the Class A shares incurred a front-end sales load, but had
 lower on-going expenses than Class B shares.  Customers who purchased Class B
 shares did not pay a sales charge at the time of purchase, but may have paid a
 charge when they sold their shares, unless the held them for six years.  B
 Shares also incurred higher on-going distribution expenses than Class A
 shares.
     Over a two-year period, NASD Regulation found that Grimes engaged in a
 pattern of making unsuitable recommendations of Class B shares to customers.
 He recommended that each of 15 customers purchase over $250,000 in Class B
 shares, when it would have been more cost-effective for those customers to
 purchase of Class A shares.  In fact, the fund had a maximum purchase
 limitation of $250,000 in Class B shares.  NASD Regulation found that
 recommendations to purchase over $250,000 in Class B shares exceeded the
 maximum purchase limitation and were unsuitable in light of the amount sold,
 the sales and distribution charges incurred and because the customers could
 have purchased the A Shares with substantially lower sales charges.  Stifel
 failed to supervise by not having a system in place to detect sales in excess
 of the maximum purchase limits on the funds it sold.
     NASD Regulation found that Stifel and Grimes earned sales commissions of
 over $290,000 or four percent of the purchase on the sale of Class B shares.
 The sales commissions would have been less than half this amount had they sold
 Class A shares.
     In another instance, NASD Regulation found that Grimes recommended to 29
 customers that they liquidate another mutual fund and purchase, in the
 aggregate, over $500,000 of Class B shares.  Again, the customers were
 eligible to purchase Class A shares, the more cost-effective purchase at the
 time because of a temporary marketing promotion offered by the fund that
 eliminated a sales load at either the time of purchase or the time of sale.
 Stifel and Grimes earned $21,000 on the sale of these Class B shares, and
 would not have earned any sales commission had they sold Class A shares.
     As a result of the NASD disciplinary action, Grimes has been suspended for
 30 days and will pay fine of $30,000.  Lasko has been suspended for 10 days in
 a supervisory capacity, and has been fined, together with the firm, $25,000.
 Stifel has agreed to pay a total fine of $41,000, which included the
 violations noted above.  Both the firm and the two respondents have neither
 admitted nor denied the allegations, but have consented to the entry of
 findings pursuant to the settlement.
     NASD Regulation recently issued an Investor Alert explaining the
 difference between Class A and Class B mutual fund shares.  NASD Regulation's
 Investor Alerts area can be found on the NASD Regulation Web Site at
 http://www.nasdr.com.
     In addition, investors can obtain the disciplinary record of any NASD
 registered broker or brokerage firm by calling 800-289-9999, or by sending an
 e-mail through NASD Regulation, Inc.'s web site http://www.nasdr.com .
 
     NASD Regulation oversees all U.S. stockbrokers and brokerage firms.  NASD
 Regulation, The American Stock Exchange(R), NASD Dispute Resolution, Inc. and
 The Nasdaq Stock Market, Inc., are all subsidiaries of the National
 Association of Securities Dealers, Inc., the largest securities-industry self-
 regulatory organization in the United States.
 
 

SOURCE NASD Regulation, Inc.
    WASHINGTON, April 18 /PRNewswire/ -- NASD Regulation, Inc. today announced
 that it has censured and fined Stifel, Nicolaus & Company, Inc. of St. Louis,
 MO, and two individuals, Michael G. Grimes and his supervisor, William J.
 Lasko, for violating NASD rules in connection with the sale of Class B mutual
 fund shares.  NASD Regulation found that between June 1996 and May 1998,
 Grimes made unsuitable sales totaling over $7 million to 44 customers in Class
 B mutual fund shares, and that Lasko and the firm failed to supervise Grimes
 with respect to these unsuitable sales.
     As part of a settlement with the NASD, Stifel has agreed to exchange the
 Class B shares sold to these customers for Class A shares at no charge.  The
 cost of this restitution offer, should every customer make the exchange, is
 approximately $225,000, which will be paid jointly by Stifel and Grimes.
     Mutual funds can be offered for sale to investors in different classes.
 In this case, the Class A shares incurred a front-end sales load, but had
 lower on-going expenses than Class B shares.  Customers who purchased Class B
 shares did not pay a sales charge at the time of purchase, but may have paid a
 charge when they sold their shares, unless the held them for six years.  B
 Shares also incurred higher on-going distribution expenses than Class A
 shares.
     Over a two-year period, NASD Regulation found that Grimes engaged in a
 pattern of making unsuitable recommendations of Class B shares to customers.
 He recommended that each of 15 customers purchase over $250,000 in Class B
 shares, when it would have been more cost-effective for those customers to
 purchase of Class A shares.  In fact, the fund had a maximum purchase
 limitation of $250,000 in Class B shares.  NASD Regulation found that
 recommendations to purchase over $250,000 in Class B shares exceeded the
 maximum purchase limitation and were unsuitable in light of the amount sold,
 the sales and distribution charges incurred and because the customers could
 have purchased the A Shares with substantially lower sales charges.  Stifel
 failed to supervise by not having a system in place to detect sales in excess
 of the maximum purchase limits on the funds it sold.
     NASD Regulation found that Stifel and Grimes earned sales commissions of
 over $290,000 or four percent of the purchase on the sale of Class B shares.
 The sales commissions would have been less than half this amount had they sold
 Class A shares.
     In another instance, NASD Regulation found that Grimes recommended to 29
 customers that they liquidate another mutual fund and purchase, in the
 aggregate, over $500,000 of Class B shares.  Again, the customers were
 eligible to purchase Class A shares, the more cost-effective purchase at the
 time because of a temporary marketing promotion offered by the fund that
 eliminated a sales load at either the time of purchase or the time of sale.
 Stifel and Grimes earned $21,000 on the sale of these Class B shares, and
 would not have earned any sales commission had they sold Class A shares.
     As a result of the NASD disciplinary action, Grimes has been suspended for
 30 days and will pay fine of $30,000.  Lasko has been suspended for 10 days in
 a supervisory capacity, and has been fined, together with the firm, $25,000.
 Stifel has agreed to pay a total fine of $41,000, which included the
 violations noted above.  Both the firm and the two respondents have neither
 admitted nor denied the allegations, but have consented to the entry of
 findings pursuant to the settlement.
     NASD Regulation recently issued an Investor Alert explaining the
 difference between Class A and Class B mutual fund shares.  NASD Regulation's
 Investor Alerts area can be found on the NASD Regulation Web Site at
 http://www.nasdr.com.
     In addition, investors can obtain the disciplinary record of any NASD
 registered broker or brokerage firm by calling 800-289-9999, or by sending an
 e-mail through NASD Regulation, Inc.'s web site http://www.nasdr.com .
 
     NASD Regulation oversees all U.S. stockbrokers and brokerage firms.  NASD
 Regulation, The American Stock Exchange(R), NASD Dispute Resolution, Inc. and
 The Nasdaq Stock Market, Inc., are all subsidiaries of the National
 Association of Securities Dealers, Inc., the largest securities-industry self-
 regulatory organization in the United States.
 
 SOURCE  NASD Regulation, Inc.