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TAG | Wisconsin School District securities fraud
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SEC looks into Five Wisconsin School Districts’ Investment Cases
Comments off · Posted by admin in FINRA
The Appleton, WI, Postcrescent reported today that federal regulators are asking five Wisconsin school districts, including the Kimberly Area School District, for information about their $200 million investments that became worthless in less than four years.
The U.S. Securities and Exchange Commission recently contacted school officials seeking information about the 2006 investments the districts made through Stifel Nicolaus and subsidiaries of the Royal Bank of Canada. The SEC is charged with regulating and enforcing U.S. securities laws.
Bob Mayfield, superintendent of the Kimberly district, said commission officials asked the districts to voluntarily share data regarding the transactions.
“We’re complying and we’re working with our counsel to get them everything they need,” he said.
An SEC spokesman declined to comment Wednesday. Dan Callahan, a spokesman for Stifel Nicolaus, also declined comment.
Investments fall apart
The districts collectively purchased the synthetic collateralized debt obligations, or CDOs, using $165 million of money borrowed from the Europe-based Depfa Bank and $35 million of their own funds. Kimberly had the smallest share at $5 million.
The entire investment has since collapsed. Depfa in March defaulted on the district trusts established for the investments and seized $5.6 million in interest earned since the purchase.
The districts filed a lawsuit against the firms in 2008 as the CDOs steadily declined in value.
Kimberly’s school board is expected to vote next month on whether to include its $4.3 million share of borrowings from Depfa in its next budget to repay the bank. The district borrowed the money from Depfa through moral obligation notes, which do not legally bind them to repay the loans, but can result in damaged credit ratings should they fail to do so.
While the July meeting is expected to address the moral obligation notes, the final budget will not be approved until September, and finalized in October, according to Mayfield.
The lawsuit, filed in Milwaukee County Court, is at the stage where those involved are exchanging evidence.
Among claims in the districts’ lawsuit are fraud and deceptive trade practices. School officials say they were misled into investing in the CDOs through a Stifel product designed to build trusts for post-retirement teacher benefits.
School officials say they weren’t told that a 4 percent to 5 percent default rate among companies within the CDO could result in a total loss of their investment, the civil complaint says.
The districts also say they weren’t told the investments included risky debts such as sub-prime mortgage debt, home equity loans and credit card receivables.
Stifel Nicolaus filed counterclaims in March seeking legal fees and other unspecified compensation from the districts and trustees named to oversee the district trusts. The company says the districts and trustees were negligent because they misrepresented how much they knew about investing when they bought the CDOs.
The investments were structured in a manner in which the Royal Bank of Canada benefitted through default on debts within the investment package. The districts didn’t own the debts, but rather insured them.
The districts are seeking the return of the $200 million invested, actual damages and punitive damages at three times the amount actually lost as result of the investments.
Kimberly expected to earn $550,000 above interest owed to Depfa when the notes matured.
Milwaukee Judge William Brash III will next call the case for a status conference on Sept. 2.
If you are a victim of the alleged fraudulent tradings schemes of Stifel Nicolaus, a subsidiary of the Royal Bank of Canada, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.
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