Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, December 29, 2009

Stifel Settles ARS Charges with State Securities Regulators

NASAA today announced that a settlement in principle has been reached between Stifel, Nicolaus & Co., Inc. and state securities regulators to provide relief for the firm’s clients who have had their funds frozen in the auction rate securities (ARS) market.  The settlement with St. Louis-based Stifel, Nicolaus calls for the firm to buy back from its investors more than $100 million in auction rate securities. The settlement is the result of a task force investigation led by the Colorado Division of Securities, the Securities Division of the Indiana Office of the Secretary of State and the Securities Division of the Missouri Office of the Secretary of State.
Under the terms of the settlement, Stifel will significantly accelerate the unendorsed repurchase plan it announced in April, and all Stifel investors holding auction rate securities will receive a payout by January 15, 2010. Additionally, Stifel will accelerate its planned 2011 partial repurchase event to December 2010, and make additional payments at that time. As a result of this acceleration and these additional payments, every investor who had $150,000 or less in auction rate securities holdings will be made whole by the end of next year. The payouts to be made in 2010 will be worth up to $41 million and will lead to full buybacks for 80 percent of investors nationwide.

Stifel will also accelerate its final buyback previously scheduled for June 2012 so that all auction rate holders receive a full buyback and are made whole no later than the end of 2011. The average overall account size of investors receiving the accelerated 2011 full repurchase is more than $5 million.

The settlement also requires Stifel to work with a bank affiliate to make its best efforts to offer interim loans on investor-friendly terms, and to hire a securities industry expert to make recommendations on supervision, training, marketing and selling nonconventional products. Stifel will also pay a penalty of $525,000, to be divided among the states, and will be charged with failure to supervise and train its agents in the sale of auction rate securities. Stifel also agreed to reimburse Missouri and Indiana for costs associated with the investigation and make quarterly reports on repurchases and other auction rate securities activity.

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