Stifel on Wrong Side of One of the Largest Damages Awards in FINRA Arbitration History

A FINRA arbitration panel has ordered Stifel Financial to pay $132.5 million to a family for misrepresenting the risk of complex structured notes.

The arbitration case between the claimants – David, Sarah Lyn, Adam, and Leah Jannetti –and the respondent, Stifel, Nicolaus & Co. Inc., was adjudicated through FINRA Dispute Resolution Services in Boca Raton, Fla.

The claimants alleged multiple causes of action, including breach of fiduciary duty, negligence, fraud, breach of contract, and violations of Florida securities law. These claims revolved around structured note investments, where the claimants argued that Stifel engaged in misconduct, including overconcentration of their accounts, misleading communications, and prioritizing its financial interests over those of the clients. Stifel denied the allegations and asserted various affirmative defenses.

The claimants sought compensatory damages exceeding $5 million, punitive damages, interest, attorneys’ fees, and other relief. Stifel, in response, requested the dismissal of all claims, attorneys’ fees, and expungement of certain records related to an unnamed person: Chuck Roberts. However, Stifel later withdrew its expungement request.

The panel ruled in favor of the claimants, awarding significant compensatory and punitive damages. David Jannetti received the largest compensation, totaling approximately $26.1 million, while the other three claimants were awarded amounts ranging from $125,662 to $127,501. Additionally, punitive damages were imposed, with David Jannetti receiving $78.3 million and the other claimants receiving sums between $376,986 and $382,503. The panel found that Stifel had actual knowledge of its wrongdoing and continued its misconduct despite foreseeable harm to the claimants.

The arbitrators determined that Stifel’s egregious actions warranted severe financial penalties, including but not limited to:

• Overconcentration of the claimants’ accounts in structured notes and overconcentration of the claimants’ accounts in limited industries;
• Choosing not to send an over concentration letter on Oct. 21, 2021, based on a specific phone conference with the claimants despite evidence that the respondent’s notes of the conference confirm the subject of over concentration was not discussed or addressed;
• Disregarding the respondent’s investment philosophy in the claimants’ solutions account;
• Placing the financial interest of the respondent ahead of the interests of claimants;
• Permitting/encouraging leverage absent a reasonable basis to believe the claimants had the financial ability to meet such commitments in violation of FINRA Rule 2111, as well as the respondent’s stated guidelines;
• Violating its fiduciary duty owed to the claimants;
• Failing to exercise heightened supervision including retraining as required;
• Permitting and encouraging the offering of “custom” structured note products via texts in violation of the U.S. Securities and Exchange Commission recordkeeping requirements and which the texts contained inaccurate and misleading terminology;
• Considering that the branch manager had no knowledge that the unnamed person Roberts was required to have heightened supervision; and
• Claimants were not advised that unnamed person Roberts decided to stop offering single stock structured notes.

The arbitration panel also ordered Stifel to pay interest on the awarded damages per Florida statutory rates, as well as attorneys’ fees and costs amounting to 25% of the total damages awarded to each claimant. Moreover, Stifel was required to reimburse FINRA arbitration fees and costs, including filing fees, member fees, and hearing session fees, which totaled over $63,900.

According to third-party reporting, Jeffrey Erez, the Jannetti’s lawyer, said: “This is a strong message to Stifel and other broker-dealers that if you don’t enforce industry and compliance rules, there will be accountability.”

For its part, Stifel said that it “plans to seek judicial review of this outsized award, which is supported by neither the facts nor the law,” according to a release from the company. Stifel claimed that the Jannetti family is “a sophisticated family of experienced and aggressive investors who understood the risks involved, participated in the selection of investments, monitored them closely and only complained after incurring losses.”

The $132 million penalty is more than half of Stifel’s reported fourth quarter net income of approximately $235 million.

As previously reported by AltsWire, Stifel was previously penalized nearly $2 million for rules violations and alleged misconduct.

Stifel Financial Corp. (NYSE: SF) is a financial services holding company headquartered in St. Louis, Mo., that conducts its banking, securities, and financial services business through several wholly owned subsidiaries. Stifel’s broker-dealer clients are served in the United States through Stifel, Nicolaus & Company, Inc. As of Jan. 29, 2025, Stifel reported a net revenue of $4.97 billion for the year ended Dec. 31, 2024.

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