A U.S. district court magistrate has recommended that Stifel’s motion to vacate a nearly $133 million arbitration award be denied, according to a court filing.
The Financial Industry Regulatory Authority arbitration award, issued about a year ago, concerned former Stifel broker Chuck Roberts’ “investments in structured notes.” The firm argued that the clients were “sophisticated” and understood the risks.
On Friday, U.S. District Court for the Southern District of Florida’s Magistrate Judge Eduardo I. Sanchez said the award should hold, arguing that the arbitration panel didn’t exceed its authority by awarding punitive damages, that Stifel was not denied due process, and that the panel did not “refuse to hear evidence.”
“We disagree with the Magistrate’s recommendation, which is just the first step of judicial review of a runaway arbitration award that resulted from a biased and unfair FINRA process,” said Neil Shapiro, spokesman for Stifel, in a statement. “We believe the award cannot be sustained for multiple reasons as clearly laid out in our filings.”
The Jannetti family (including David, Sarah Lyn, Adam and Leah) brought the claim, and the arbitrators’ mammoth award far exceeded the $5 million in damages the claimants requested.
FINRA opted for such a massive sum because it believed Stifel had “actual knowledge of the wrongfulness of the conduct” and knew there was a “high probability” the Jannetti family would face damage. However, despite knowing this, the firm allegedly intentionally pursued the course of conduct.
These examples of “egregious conduct” included overconcentrating the Jannettis’ accounts in structured notes and accounts “in limited industries,” as well as disregarding Stifel’s own “investment philosophy” in the Jannettis’ accounts. (Structured notes are generally investments, often debt, coupled with a derivative component that ostensibly provides downside protection.)
In this case, the Jannetti family filed a cross-motion for post-award prejudgment interest and sanctions against Stifel for pursuing a “frivolous challenge.” Sanchez argued that the family is entitled to post-award prejudgment interest, but that monetary sanctions are not warranted and should be denied.
The parties have until Feb. 20 to file any written objections to his recommendations.
Stifel has had a string of settlements and arbitration awards involving Roberts, a former Stifel rep who was barred from the industry in July for failing to cooperate with FINRA’s investigation into client complaints alleging recommendations of unsuitable investments. In January, the firm paid an additional $850,000 to settle another arbitration claim related to the former broker’s sales of structured notes. The firm faces 23 pending customer disputes.
In October, sources close to the investment banking community and Stifel said the legal entanglements could prompt Stifel executives to accelerate a decision to sell the remaining business, and confirmed that Raymond James has been discussed internally as a potential buyer.
When asked at the time about that report, Stifel CEO Ron Kruszewski replied with a written statement: “I don’t think Raymond James would sell to us, but if that ever changes, I’d be interested.”
In other published reports, Kruszewski denied that the company was being sold to Raymond James.
That same week, Stifel announced plans to sell its independent advisor channel, a small business unit with approximately 110 advisors and $9 billion in client assets, to Equitable.
