Stifel Clients Awarded $1.5 Million in Failure-to-Supervise Arbitration

October 8, 2019

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A Financial Industry Regulatory Authority arbitration panel has ordered Stifel Nicolaus to pay $1.5 million to three customers who claimed the firm failed to properly supervise a broker who piled them into biotechnology and healthcare stocks. 

The customers, who initially sought $38 million before making their final $1.5 million claim, alleged that Baltimore-based broker Kenneth D. Blumberg invested as much as 80% of their portfolio in fewer than 10 biotech stocks, according to an award issued on October 3 by three “public” arbitrators and the original complaint they filed in December 2017. 

“The concentration risk and asset allocation defects associated with this investment strategy should have been ongoing ‘red flags’,” attorney Daniel J. Miller wrote in the complaint against Stifel and the broker that he provided to AdvisorHub. “Yet, if they ever took notice, they failed to contact claimants and failed to take any corrective measures.” 

Blumberg mismarked trades as “unsolicited,” and encouraged the customers to not only “stay the course” but add to their positions as the portfolio began to lose value, according to the complaint. The customers’ accounts fell from their peak in 2015 by $1.8 million, it said. 

The arbitrators did not impose a monetary award against the broker, but denied his request to expunge the customer dispute from his public BrokerCheck record. 

A Stifel spokesman did not return a request for comment on the award.

The customers—Michael and Wendy Stern, and Paul Levin—had requested an “explained” award but the arbitrators did not provide one because of Stifel’s objections, according to the award document. In addition to alleging negligent supervision against Stifel, their complaint alleged breach of contract, breach of fiduciary duty, omission of facts/misrepresentation and fraud.

The initial $38 million request included eight other customers of another Stifel broker in Blumberg’s office, but that claim is proceeding separately after the customers realized that the brokers were not partners, Miller said. The claim in that case is for $20 million.

The Sterns and Levin reduced their initial multi-million-dollar request for damages over the course of the arbitration to the amount they were awarded after determining that they did not have “cause” for claiming punitive damages, Miller said.

Blumberg, a 32-year brokerage veteran who has been with Stifel and predecessor firm Ryan Beck & Co. since 2005, did not return a call for comment to his office in Hunt Valley, Maryland. 

His BrokerCheck record shows three other customer complaints dating back to 2001 and 2003, in addition to the 2017 claim that survived his expungement request. Two of the earlier claims were denied and a third seeking $50,000 was settled for $27,000, according to BrokerCheck.

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