Broker sued for fraud after schools lose $200M

8/11/2011

WASHINGTON — Federal regulators are accusing brokerage firm Stifel Nicolaus & Co. of civil fraud in its sales of risky complex investments to five Wisconsin school districts that lost all of the $200 million they invested.

The Securities and Exchange Commission announced the lawsuit Wednesday against Stifel Nicolaus of St. Louis and former senior vice president David Noack. The SEC said they misled school districts officials by telling them the investments made in 2006, which ended up failing, were safe. The investments were linked to default insurance protection on corporate bonds. The school districts’ credit ratings were downgraded as a result.

Stifel Financial Corp., the brokerage firm’s parent, disputed the SEC’s charges and said it will contest them in court. In its suit filed in federal court in Milwaukee, the SEC is seeking unspecified restitution and fines against Stifel Nicolaus and Mr. Noack.