08/29/2024
******This is why you can't make money in the stock market and can't trust the regulators to protect you****** collusion between the banks and brokers (and probably the regulators) are screwing the average investor yet the Securities Commisions were probably told to look the other way. The Canadian Investment Regulatory Organization has fined Stifel Nicolaus Canada Inc. $475,000 for failing to properly supervise its employees and their use of confidential information. In particular, CIRO says that Stifel employees shared details of upcoming offerings with hedge fund managers. Those hedge fund managers traded on the information, entering short sales ahead of the offerings, CIRO claims.
The penalties for Stifel are contained in a settlement agreement that CIRO released on Aug. 23, 2024. In addition to the $475,000 fine, the firm has agreed to pay $25,000 in CIRO's costs. The penalties represent a negotiated settlement, in which Stifel has admitted to the violations, at least for the purpose of settling the matter.
The case goes back to March, 2020, when Stifel had placed all its employees on a remote working program in the early stages of the COVID-19 pandemic. As with many firms, Stifel remained regularly involved in offerings of shares in public companies, with employees discussing the sales of millions of shares and the associated details, such as the price.
The problem, as set out by CIRO, was that Stifel employees were communicating those details to hedge fund managers. (The settlement does not identify the employees or the hedge funds, referring to all involved by labels such as "Stifel Employee A.") According to CIRO, the hedge fund managers were able to trade on the information, entering orders that generated profits in the tens or even hundreds of thousands of dollars.
One example provided in the settlement agreement centres around an offering that occurred in April, 2020. According to CIRO, a hedge fund manager sent a message to a Stifel employee asking if there was any information on a particular company. The employee replied "yes," "working on a block," the settlement states. The employee then sent a message that simply read "calling," indicating a phone call took place.
According to CIRO, the hedge fund manager started entering short sale orders for the stock within 20 minutes of that final message. The manager quickly had four orders filled, totalling 160,000 shares, at $10.637. The hedge fund then entered an expression of interest in the offering, and received 470,000 units at $10, CIRO says. Based on the price difference between the short sale and the offering, CIRO calculates the potential profits on that transaction to be $97,218.
As CIRO sees things, Stifel employees failed to follow the firm's policies regarding confidential information. In legal terms, the firm "failed to enforce a system to supervise the activities of its employees with respect to the containment of confidential information contrary to Dealer Member Rule 38.1," the settlement states. In entering the settlement, CIRO acknowledged that the violation represents the first for Stifel.
