(Adds further details on settlement, background on case)
By Nate Raymond
Dec 8 Stifel Financial Corp's brokerage
unit and an ex-executive have agreed to pay $24.6 million to
resolve claims arising from the sale of risky investment
products to five Wisconsin school districts ahead of the
financial crisis of 2008.
The U.S. Securities and Exchange Commission announced the
deal on Thursday. As part of the settlement, St. Louis-based
Stifel, Nicolaus & Co and David Noack, a former senior vice
president, agreed to admit to wrongdoing, the SEC said.
Under the settlement, Stifel and Noack agreed to jointly
forfeit $1.66 million and pay $840,000 in prejudgment interest.
Stifel and Noack also agreed to pay penalties of $22 million and
$100,000, according to court documents.
The final settlement came after a tentative accord was
reached in September on the eve of trial in the 2011 lawsuit. Of
the $24.6 million that will be paid, the five school districts
will receive $12.5 million, according to court papers.
The SEC said that sum, coupled with prior settlements by the
SEC and in private litigation, would fully compensate the school
districts for their losses.
A spokesman for Stifel did not immediately respond to a
request for comment, nor did a lawyer for Noack.
The SEC sued Stifel and Noack in 2011, saying they misled
five Wisconsin school districts about the risks of investing in
synthetic collateralized debt obligations.
Synthetic collateralized debt obligations are tied to
mortgage-backed securities or credit default swaps and were at
the heart of the financial crisis eight years ago.
The districts did not invest directly in the CDOs, instead
providing funds to trusts that invested in notes issued by
special purpose vehicles affiliated with RBC Capital Markets,
the SEC said.
In trying to persuade the districts to make the investments,
Noack at the time told them it would take "15 Enrons" for them
to lose money, and told two districts that it would take 20 to
30 defaults for them to suffer a loss, the SEC said.
But according to the SEC, the investments were a compete
failure, causing the districts to suffer over $200 million in
losses as the investments declined in value in 2007 and 2008,
amid the housing market downturn and financial crisis.
RBC, a unit of Royal Bank of Canada, in 2011 reached
a $30.4 million settlement with the SEC over its role in
misconduct relating to the sale of the investments.
The case is Securities and Exchange Commission v. Stifel,
Nicolaus & Co Inc et al, U.S. District Court, Eastern District
of Wisconsin, No. 11-00755.
(Additional reporting by Susan Heavey and Tim Ahmann; Editing
by Frances kerry)