Securities Law Prof Blog

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

Wednesday, August 10, 2011

SEC Charges That Stifel, Nicolaus Defrauded Wisconsin School Districts

The SEC charged Stifel, Nicolaus & Co., Inc., a St. Louis-based broker-dealer, and former Stifel Senior Vice President David W. Noack with defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments funded largely with borrowed money.  According to the SEC’s complaint, the five school districts are the Kenosha Unified School District, Kimberly Area School District, School District of Waukesha, West Allis-West Milwaukee School District, and Whitefish Bay School District.

The SEC alleges that Stifel and Noack created a proprietary program to help the school districts fund retiree benefits by investing in notes linked to the performance of synthetic collateralized debt obligations (CDOs). The school districts established trusts that invested $200 million in three transactions from June to December 2006, paid for largely with borrowed funds. According to the SEC’s complaint, Stifel and Noack misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, the investments were a complete failure, but generated significant fees for Stifel and Noack.

 The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

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