SEC Says Stifel, Exec Sold 5 School Districts “Unsuitably Risky” Securities

CHICAGO — The Securities and Exchange Commission on Wednesday charged St. Louis-based Stifel, Nicolaus & Co. and a former senior executive with defrauding five Wisconsin school districts by selling them unsuitably risky and complex investments purchased primarily with borrowed money.

The complaint — filed in U.S. District Court for the Eastern District of Wisconsin in Milwaukee — alleges that Stifel and David W. Noack, a former senior vice president at the firm, 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.

The districts established trusts that invested $200 million in three transactions from June to December 2006. 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. The investments later failed but generated significant fees for Stifel and Noack. The districts have a pending lawsuit against Stifel and Noack over the investments.

The SEC is asking the court to impose civil penalties against firm and Noack and require them to disgorge ill-gotten gains. It also wants the court to impose permanent injunctions against them that would prohibit them from further violating or abiding and abetting violations of the securities laws. 

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