Ousted CEO of Sterne Agee Fined $25,000 for Failing to Report Lavish Spending Spree
(Updates last paragraph with Stifel’s announcement on June 27 that it is selling Sterne Agee’s independent brokerage, clearing, and RIA businesses.)
The regulatory bills are coming in for James S. Holbrook, Jr., the former chief executive of Sterne Agee Group who was fired in 2014 after allegations that he used corporate credit and payment cards to buy yachts, jets, condos and country clubs.
The Financial Industry Regulatory Authority on Monday posted a settlement agreement in which Holbrook agreed to a $25,000 fine and suspension for 15 months from acting as a securities industry principal for failing to establish supervisory procedures that would have alerted Sterne Agee to his spending spree.
Forty percent of Finra’s fine relates to Holbrook’s failure to ensure the firm could track political “pay-to-play” contributions he allegedly was making in violation of municipal securities rules.
Holbrook, who is 70, still faces a that Birmingham, Alabama-based Sterne Agee filed in December 2014 over his personal use of company assets. He is also being investigated by federal agencies, including the Department of Justice, according to Finra’s BrokerCheck database.
He settled the Finra charges without admitting or denying the allegations.
“There was no finding in terms of what Mr. Holbrook did or didn’t do, or a suggestion that what he did was wrong in any way,” said his Birmingham-based lawyer, John Dana. “The sole focus is on the supervisory angle.”
Stifel Financial Corp bought Sterne Agee in June 2015 for about $191 million as part of an acquisition spree by CEO Ron Kruszewski. A spokesman for Stifel did not respond to an emailed request for comment on whether the firm is indemnified from settlement payments in which Holbrook is involved.
In resigning as chairman of Sterne Agee’s board in July 2014, he wrote that he remained “the largest single shareholder of Sterne Agee” and that “the majority of his net worth” was tied to the future of the company.
Sterne Agee’s lawsuit against Holbrook alleges that he used corporate credit card over 10 years, starting in 2003, to buy fishing boats, a 68-foot yacht, a vacation condominium, a luxury ski chalet, a golf club in Key Largo, Fla., and a hunting club in Alabama, according to .
The Finra settlement pertains to credit and payment card transactions from 2011 to 2014—including purchases of jets, yachts and condominiums, and entertainment of unnamed politicians, according to the letter of acceptance, waiver and consent signed by Holbrook. It accused him of failing to comply with Sterne Agee’s expense reporting procedures and, in his role as CEO, of failing to set up supervisory procedures that would have flagged the violations.
“They seem to be suggesting that the main problem here is that he failed to ensure that there were rules and regulations that would make sure he wasn’t ripping the firm off,” said Bill Singer, a New York-based lawyer specializing in securities industry regulation. “You would think that Finra would be unhappy here with the board of directors for not being diligent in making sure the expenses of the CEO were appropriate.”
Sterne Agee had a supervisory system for the CEO office that operated through the audit committee, board of directors and chief financial officer, according to Holbrook’s lawyer.
“For whatever reason Finra didn’t believe it was sufficient to satisfy regulatory hurdles,” Dana said.
The Securities Litigation and Consulting Group, which offers “expert witness” testimony on behalf of individual investors, recently ranked Sterne’s independent channel among the 30 firms most harmful to investors based on disclosure events reported on Finra’s BrokerCheck database.
Stifel’s Kruszewski said last summer that the company. On June 27, St. Louis-based Stifel announced a definitive agreement to sell Sterne’s independent brokerage, clearing, and RIA businesses to INTL FCStone Inc., a publicly traded New York-based commodities and financial services firm.