CHICAGO - Five southeastern Wisconsin school districts that last month filed a lawsuit against Stifel Nicolaus & Co. and the Royal Bank of Canada - alleging they misrepresented the safety of an investment transaction involving synthetic collateralized debt obligations - will fight efforts to move the case to federal court.
The five - Kenosha Unified School District, Kimberly Area School District, Waukesha School District, West Allis/West Milwaukee School District, and Whitefish Bay School District - collectively invested about $200 million in the transaction that was tied to funding their other post-employment benefits. They now estimate the value has dropped by more than $150 million.
The lawsuit, originally filed at the state court level in the Milwaukee County Circuit Court, contends that the firms violated state securities laws by either knowingly or negligently misrepresenting details of the transaction. The suit further alleges that the firms violated the state's trade and fraud statutes because of their statements about the safety of the transactions and its compliance with state laws.
The defendants believe federal laws should be applied as the firms are based outside of Wisconsin. The districts believe that the alleged fraud was committed in the state, that state statutes are stricter and the penalties tougher, so they hope to sway a federal just to keep the case in the state courts, said spokesman Craig Peterson. Any request for a transfer of venue is automatically heard by a federal judge. The districts have until later this month to respond.
Stifel has in past interviews strongly countered the districts' assertions, providing copies of acknowledgment letters signed by the schools that did discuss the investment risks and Stifel's role as a placement agent, not a financial adviser, and that independent advice be sought.
The districts decided to establish trusts to help cover their annual required contributions and to move towards fully funding the liability over time as the trusts' holding grew, believing such a step would positively impact their credit ratings and stabilize operating costs.