Stifel Nicolaus, Century agree to pay fines

Stifel Nicolaus, Century Securities to pay fines, restitution tied to some ETF recommendations

Associated Press

WASHINGTON (AP) -- Stifel Nicolaus & Co. and Century Securities Associates Inc. have agreed to pay a combined $550,000 in fines and nearly $475,000 in restitution to 65 customers because the firms made poor recommendations on non-traditional exchange-traded funds.

The companies neither admitted nor denied the charges, but consented to the entry of the Financial Industrial Regulatory Authority's findings.

FINRA said Thursday that between January 2009 and June 2013 Stifel and Century made unsuitable recommendations of non-traditional ETFs to certain customers because some of their employees did not completely understand the unique features and specific risks associated with leveraged and inverse ETFs. FINRA said that even though some employees didn't fully understand the ETFs, Stifel and Century allowed them to be recommended to customers.

Stifel and Century are owned by Stifel Financial Corp.

Leveraged and inverse ETFs "reset" daily, meaning that they are designed to achieve their stated objectives on each day, so their performance can quickly diverge from the performance of the underlying index or benchmark. It is possible that investors could suffer significant losses even if the long-term performance of the index shows a gain. This effect can be heightened in volatile markets.

FINRA said it also found that Stifel and Century didn't have reasonable supervisory systems in place, including written procedures, for the sale of leveraged and inverse ETFs. It also found that the companies failed to make sure that its workers had adequate formal training on the products before recommending them to customers.

Stifel agreed to pay a fine of $450,000 and to make restitution of nearly $340,000 to 59 customers. Century agreed to pay a fine of $100,000 and to make restitution of more than $136,000 to six customers.

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