SEC Charges Stifle, Nicolaus & Co and Executive with Defrauding Wisconsin Schools

The U.S. Securities and Exchange Commission accused Stifel, Nicolaus & Co. as well as a former senior executive at that firm of fraud involving five separate school districts in Wisconsin. The SEC called the investments unsuitable, risky and complex.

According to the SEC, the firm and its senior vice president spearheaded a program that, they claimed, would help finance school district retiree benefits through collateralized debt obligations or "CDOs." Instead, the firm grossly misrepresented the riskiness of the investments to the districts. (According to the complaint, Stifel and Noack said it would take "15 Enrons" for the investments to fail.)

The SEC also alleged that Stifel and Noack failed to disclose certain material facts to the districts, including the fact that certain CDO providers felt Stifel's proprietary program was too risky, and therefore declined to participate in it.

According to the complaint, the school districts set up trusts to deposit $200 million of primarily borrowed money into the notes in a series of three transactions over the last seven months of 2006. The investments were a complete failure. In addition to their losses, the school districts suffered a downgrading of their credit rates due to their inability to provide additional funds to the trusts they had established.

The SEC's complaint listed the five defrauded school districts as: Kenosha Unified School District No. 1, Kimberly Area School District, School District of Waukesha, West Allis-West Milwaukee School District, and School District of Whitefish Bay.


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