Attorneys for Madison County claim that brokerage firm Sterne Agee & Leach of Birmingham, Ala. defrauded the county by selling it inappropriate securities and generating millions of dollars in excessive commissions and fees, according to an amended complaint filed with the Financial Industry Regulatory Authority (FINRA).
Madison County is represented by Bruce Oakes and Richard Fosher of St. Louis. The attorneys originally filed a complaint against Sterne Agee last August seeking $400,000 in losses it alleges were due to the purchase of risky bonds. They recently amended their complaint with FINRA, a regulatory body for member securities firms and exchanges.
Sterne's broker Richard D. Holt of Hot Springs, Ark. acted as a registered agent for Madison County's brokerage account until last December. Based on his recommendations, Madison County purchased securities through Sterne Agee which totaled over $500 million, the complaint states.
Over a nine year period, from 2001 through 2010, Madison County received purchase recommendations from Sterne Agee. The balance for the account averaged about $100 million, according to the complaint.
In that time, Madison County made annual bond purchases each year with Sterne Agee averaging over $50 million.
The complaint states that Sterne Agee recommended securities that were appropriate for retail investors, not for institutional investors such as Madison County.
Because of the large amounts invested, Madison County should have qualified as an institutional investor that should have received preferential treatment and lower commissions, the complaint states.
Madison County seeks disgorgement of unfair commission and fees that Sterne Agee generated from these securities transactions, the complaint says.
The complaint also seeks relief from "unsuitable recommendations" made by Holt involving about $40 million in bond purchases, which exposed Madison County's government operating funds to significant risk and were outside the Madison County investment policy guidelines.
Sterne Agee will be unjustly enriched to the detriment of Madison County if it is able to retain the unfair and unjust commissions and fees it generated at the expense of Madison County, the complaint states.
Madison County also claims Holt failed to use reasonable care in making suitable recommendations to claimant, and Sterne Agee breached its legal duty and obligation to supervise properly its registered representative.