Rogue Broker at Stephens Inc. Caused Penalty, $1.9M Claim

by George Waldon  on Monday, Feb. 17, 2014 12:00 am  

Stephens Building (Photo by Mauren Kennedy)

ETF trades were part of that unauthorized trading activity, according to ASD officials.

The ASD findings reported that until Aug. 7, 2009, Stephens had no written compliance policy that specifically addressed transactions in inverse or leveraged ETFs. Months after that, the Stephens internal computer system was unable to track the sale of leveraged and/or inverse ETFs and enforce the written policy.

LaRue traded the unsuitable ETFs before and after Aug. 7, 2009.

The lack of internal policies regarding ETFs and monitoring ETF trading wasn’t peculiar to Stephens.

“Stephens was not alone,” Freydl said. “It was a widespread industry problem.”

In October 2012, 10 months before Stephens was fined, the ASD fined Morgan Keegan & Co. $15,000 for one broker’s unsuitable ETF trades involving one client.

Stephens argued unsuccessfully that it should have re-ceived a comparable fine, even though LaRue’s infractions involved multiple clients.

And unlike Morgan Keegan, according to the ASD, Stephens didn’t have any ETF policies in place when LaRue’s infractions began and later had a monitoring system in place that didn’t work.

Stephens executives be-grudgingly agreed to the $25,000 fine, but in November, its general counsel, David Knight, filed an ethics complaint against Abshure. Among other things Stephens claimed the fine was increased because the firm refused to make a donation to the North American Securities Administrators Association in lieu of a fine.

Abshure was last year’s president of the NASAA, an organization that has opposed some national legislation advocated by Stephens CEO Warren Stephens.

After the economic downturn in 2008, securities officials began seeing more and more trading in the exotic ETFs.

“We saw an explosion of non-traditional investments,” Abshure said. “Instead of sophisticated investors, we started seeing Ma and Pa buy.

 

 

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