Stifel, Nicolaus & Co. will complete the buyback of auction-rate securities from retail investors six months early under a settlement in principle reached with securities regulators in Missouri, Indiana, and Colorado announced late Monday.
As part of the settlement with the St. Louis-based regional brokerage, Stifel will formally agree to buy back at par ARS still held by its investors in those states by the end of 2011, ahead of a previous commitment it made to do so voluntarily by mid-2012.
In addition, it agreed to pay a $525,000 fine that will be shared by the states, plus $250,000 to Missouri and $25,000 to Indiana for costs tied to their ARS investigations.
In exchange, the three state regulators agreed to drop litigation brought against the firm earlier this year.
While a suit filed by Missouri in May included charges against 16 managers and agents of the firm for allegedly fraudulent sales practices, the terms of the settlement would end the litigation against those individuals.
“The number-one goal of my office has always been to get Stifel investors their money back as quickly as possible,” Missouri Secretary of State Robin Carnahan said in a statement.
State officials said that they are working to “memorialize” the tentative agreement included in a so-called settlement term sheet into a consent agreement that the firm and the regulators hope to finalize within a couple of weeks.
It was not precisely clear how much ARS still held by Stifel retail investors in the three states will be covered by the settlement, but it appeared to approach about $100 million. Missouri said its settlement would return up to $41 million to investors in that state while Indiana officials said the settlement would provide liquidity to $54 million of ARS held by retail investors there. An estimate from Colorado was not immediately available.
In addition to the buybacks, which will occur throughout the next two years, Stifel will also have to hire an independent consultant who will review the firm’s supervisory and compliance policies and procedures for “non-conventional investments,” the firm announced in a statement.
In agreeing to speed up its buyback program launched earlier this year, Stifel will agree to provide a partial buyback to every retail investor holding ARS by Jan. 15, 2010, and all investors with $150,000 or less will be completely paid back by December 2010. Remaining investors will be paid back fully by the end of 2011.
Asked how much ARS the company currently holds, a Stifel spokesman referred a reporter to the company’s most recent 10Q quarterly report filed with the Securities and Exchange Commission. As of Sept. 30, the company held $9.943 million of municipal ARS and $45.843 million of ARS equity securities, according to the filing.
Market participants noted yesterday that the Stifel settlement comes even as ARS litigation is still pending in several other states, including charges Massachusetts Secretary of State William Galvin has brought against Oppenheimer & Co. and New York Attorney General Andrew Cuomo still has pending against Charles Schwab & Co.
