Wall Street regulator fines Stifel, Century over risky ETF sales

WASHINGTON Thu Jan 9, 2014 10:38am EST

WASHINGTON (Reuters) - Two brokerage units of Stifel Financial Corp will pay more than $1 million to settle civil charges alleging they sold risky, ill-suited exchange-traded fund products to certain customers, Wall Street's self-funded regulator said Thursday.

The Financial Industry Regulatory Authority said Stifel, Nicolaus & Company, Inc and Century Securities Associates Inc will pay fines of $550,000 and restitution of $475,000 to 65 harmed customers, without admitting or denying the charges.

"Stifel and Century are pleased to have resolved this matter. We will continue to serve our clients, consistent with their investment goals," said Tim Beecher, a spokesman for the company.

The risky products at the heart of the case - leveraged and inverse exchange-traded funds - have been in regulators' sights now for several years.

These funds are designed to amplify short-term returns by using debt and derivatives. Although they can help investors earn a lot of money, they can also magnify losses, making them more suitable for professional traders.

Both FINRA and the Securities and Exchange Commission have been looking more closely into these funds to see if they are adequately transparent for retail investors and are not helping to fuel market volatility.

In 2009, the regulators jointly issued an investor alert warning retail investors about the risks of investing in such products.

In 2012, FINRA's enforcement chief Bradley Bennett also told Reuters that his office was planning to bring cases against brokerages who were engaged in unsuitable sales of leveraged and inverse ETFs.

In the case on Thursday, FINRA alleges that Stifel and Century sold the products between January 2009 and June 2013 to retail customers who did not understand the unique features and risks.

In addition, FINRA said the brokerages did not have the proper policies and procedures in place related to the sale of non-traditional ETFs.

(Editing by Bernadette Baum)

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