JEFFERSON CITY, Mo. (CN) – Stifel, Nicolaus & Co. investment brokers will pay $1.1 million to settle the state’s claim that it failed to supervise an employee who ran a pyramid scheme – and is in prison for it.
Kenneth Neely worked for Stifel as a stock broker between October 2002 and January 2007 and at another brokerage, AXA advisors, between December 2007 and July 2009, the Missouri Secretary of State said in a statement announcing the settlement.
The Missouri Commissioner of Securities accused Neely in November 2009 of selling unregistered and nonexempt securities. The state claimed that while working at Stifel, Nelly told friends and church members that his investment club would pay up to 20 percent in annual interest – but he did not tell them the securities were unregistered.
Neely was convicted of mail fraud in February 2010 and is serving 37 months in federal prison.
The state claimed that Stifel, Nicolaus failed to detect or investigate red flags, failed to reasonably supervise Neely and ignored a customer’s check sent to Neely’s home address and a customer’s concerns about Neely’s investment club.
Stifel will pay $531,385 in restitution and interest to 10 investors in Missouri, California, Florida and Maryland, another $500,000 to the Missouri Investor Education and Protection Fund, and $70,000 for the cost of the investigation. It also must hire a consultant to study its supervisory and compliance activities.
Stifel agreed to the facts in the case, but neither admitted nor denied the regulator’s allegations, according to the consent order.
AXA signed a similar consent order with the state in December 2010.