The top Massachusetts securities watchdog says his $3.2 million enforcement case against a former Stifel Nicolaus broker is a prime example of why he remains skeptical when wealth management firms insist they take oversight seriously.
"There was a complete lack of supervision in this case," said Massachusetts Secretary of the Commonwealth William Galvin, "even though we constantly hear from firms that they do have supervisory plans in place."
Galvin was referring to his
Galvin's office's investigation into Crespi's conduct revealed many instances when his supervisors had reason for suspicion but failed to take remedial steps. His unauthorized transactions included one case in which he had traded in a deceased client's account, according to Galvin's office.
During his time at Stifel, Crespi was the subject of four internal reports. That, according to Galvin's office, is ample evidence that his supervisors were aware of the reasons for concern.
The first of those reports, from January 2020, found that his trading at Stifel had generated more than $1.2 million over the previous 12 months and triggered 135 internal alerts. Seventy-four of the accounts he managed during that period had an unusually high return on assets of greater than 2%, meaning that was the percentage of their value that was going back to Stifel.
The main reason for the high numbers, according to Galvin's office, was an "active trading strategy," even though the accounts generally underperformed the market. Of the 74 accounts, 63 saw at least 50% of their portfolio holdings turned over in the 12-month period, 23 saw 100%, and four saw more than 150%.
A subsequent report, from May 2020, looked at Crespi's trading in his 20 most profitable accounts. It found the average age of the account holders was 70 and that his trading had produced an unrealized loss of $820,000, according to Galvin's office.
After a branch manager, unnamed in Galvin's complaint, caught him in a lie about his trading, she warned him that if he were caught in any repeat violations, "it would be over." A higher supervisory official, also unnamed, later canceled one of his trades and warned others at the firm that he would "try it again with all his family accounts" and that the "spots of a leopard" do not change.
Despite the red flags, Crespi — who had been Stifel's sixth highest-producing employee in New England as of June 30, 2019 — was recognized at the beginning of 2021 for his contributions and invited to an awards event. He was let go a little more than a year later, but not before his conduct had given rise to two more internal reports.
Galvin,
"I wish I could say this is not a unique case and this is not a recurring theme in the financial services industry," Galvin said.
A spokesman for Stifel Nicolaus declined to comment.
This isn't the first time Stifel has caught Galvin's notice. It entered into a $300,000 settlement in December 2018 for failing to supervise representatives of a Massachusetts branch. It was also ordered in March 2021 to pay a $100,000 fine for failing to supervise a broker-dealer who recommended unsuitable investments in precious metals.
Michael Edmiston, a securities lawyer at Jonathan W. Evans & Associates in Studio City, California, and past president of the Public Investors Advocate Bar Association, said Galvin's skepticism of the industry certainly seems warranted.
"Are cases like this only happening in Massachusetts?" he said. "That seems very unlikely. And that's what troubles me."
Edmiston said it's clear to him Stifel Nicolaus viewed regulatory compliance as a cost of doing business.
"They view their brokers as a profit center," he said. "And profits in this case triumphed over investor protection."
Leila Shaver, the founder of My RIA Lawyer in Atlanta, which represents brokerage and investment advisors, acknowledged Galvin's reputation as a strict enforcer of securities laws.
"This sometimes has led to stiff penalties and overzealous pursuits of otherwise well-meaning advisers who genuinely do their best to comply with state law," she wrote in an email. "In this case, though, he got it right."
Regulators, she said, "generally are tired of the lip service they receive from firms. They want to see action."
Crespi's termination from Stifel Nicolaus in early 2022 wasn't the end of his run in the brokerage industry.
Before joining Stifel Nicolaus, Crespi had been at Merrill Lynch for 12 years. He was the subject of three customer disputes during that time. One of those was from a client who was unhappy with the performance of her investments and another with an unauthorized trade. Merrill denied all three of the complaints.
