Stifel, Nicolaus & Co. and the broker-dealer's former vice president, David W. Noack, agreed to pay a total of $25 million to settle SEC charges that they sold risky synthetic collateralized debt obligations to five Wisconsin school districts.
The five districts had intended to use the returns from the $200 million investment in the synthetic CDOs in 2006 to pay retiree benefits, but they lost most of their money and suffered credit rating downgrades when they couldn't pay back the loans, according to the Securities and Exchange Commission complaint filed in U.S. District Court in Milwaukee.
The SEC had filed suit against Stifel and Mr. Noack in August 2011.
As part of the settlement, Stifel and Mr. Noack admitted to wrongdoing, the SEC said in a news release.
U.S. District Court Judge Charles N. Clevert Jr. on Tuesday approved the settlement, ordering Stifel and Mr. Noack to jointly pay $2 million in disgorgement; Stifel will also pay a penalty of $23 million and Mr. Noack, $100,000.
The disgorgement distribution as well as a previous $30 million distribution in a related case against RBC Capital Markets, settled in September 2011, along with settlements obtained in the school districts' private lawsuit in the same federal court against Stifel and RBC, will fully compensate the five Wisconsin school districts for their losses, the SEC said.
The districts involved were Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay.
Ronald Kruszewski, chairman and CEO of parent Stifel Financial, said in a news release, “We are very pleased to have these issues, which relate to 2006 transactions, behind us. We are also pleased that the resolution of these cases will benefit the five southeastern Wisconsin school districts with whom we have continued to partner in recent years.”
Joel Jeffrey, Stifel spokesman, said the firm would have no further comment.