Wall Street Plays Hardball

Taxpayers are taking another hit as strapped local governments fork over billions in fees on investments gone bad

From Business Week
November 18, 2009, 8:10PM EST

Charm Offensive
The seeds of this looming disaster were sown during the credit boom, when Wall Street targeted cities big and small with risky financial products that promised to save them money or boost returns. Investment bankers sold exotic derivatives designed to help municipalities cut borrowing costs. ... Private equity firms, pointing to stellar historical gains, persuaded big public pension funds to plow billions of dollars into high-cost investments at the peak of the market. Many of the transactions shared a striking similarity: provisions that protected the banks from big losses and left the customers on the hook for huge payouts....

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From: State of Indiana Office of the Secretary of State Securities Division

View the source document here

IN THE MATTER OF:

STIFEL NICOLAUS & COMPANY, INCORPORATED,
)Cause No. 09-0198 SC

ORDER TO SHOW CAUSE

The office of the Secretary of State, Securities Division, filed an Administrative Complaint against Respondent alleging violations of the Indiana Securities Act, Ind. Code 23-2-1 (2007) ("the Act").

Pursuant to Ind. Code 23-19-6-4-(a), the Securities Commisioner ("Commissioner") may enter an order to show cause without prior hearing when in the public interest.

After reviewing the Administrative Complaint and being duly advised, the Commissioner finds that ground exist under the Act to order Respondent to show cause as to why an administrative penalty should not be levied against them, why an order of rescission, restitution or disgorgement should not be entered against them, and why they should not be barred from the securities industry in Indiana. The Commissioner finds this order is in the public interest.

The commissioner therefore ORDERS the Respondent to file a written answer or other response to the Administrative Complaint within fifteen (15) days of receipt of this Order AND to appear at a hearing on NOVEMBER 18, 2009 at 9:00 a.m. in the conference room of the Securities Division, located in room E-111 of the Indiana Government Center South, 302 West Washington Street, Indianapolis, Indiana 46204.

If Respondent request an earlier hearing in writing, a hearing will be set within fifteen (15) days after receipt of a request in writing from the person. The Commissioner is seeking a civil penalty and costs of the investigation against the Respondent.

ORDERED at Indianapolis, Indiana, this 1st day of OCTOBER, 2009.

REGULATORS IN COLORADO, INDIANA, CHARGE STIFEL NICOLAUS WITH FRAUD IN AUCTION-RATE SECURITIES - SALES PROMOTED AS "SAFE" AND "LIQUID"

Colorado Seeks Suspension or Revocation of Stifel, Nicolaus & Co. Securities License

NEWS RELEASE

For Immediate Release
October 1, 2009
Download this release here

Contact:
Gerald Rome, Deputy Securities Commissioner
(303) 894- 2320

STIFEL, NICOLAUS & COMPANY CHARGED WITH
FRAUDULENT SALES OF AUCTION RATE SECURITIES

Denver, Colorado --- Colorado Securities Commissioner Fred Joseph announced today the Securities Division Staff has filed a complaint against St. Louis based brokerdealer Stifel, Nicolaus & Company alleging that Stifel Nicolaus falsely represented auction rate securities as liquid, short-term investments to Colorado investors without discussing the risks. These representations gave investors a false sense of security that the investments would always be liquid when auction rate securities, in fact, faced significant, inherent liquidity risks.

In the complaint, the Division alleges that Stifel Nicolaus violated the Colorado Securities Act by making false representations to investors, failed to adequately supervise its sales force, and engaged in unfair and dishonest dealings by making unsuitable recommendations to its customers.

Auction rate securities are long-term bonds that rely on the successful operation of a periodic auction for short-term liquidity. Stifel brokers repeatedly and persistently misrepresented the liquidity risks in auction rate securities, comparing them to money market funds, selling auction rates securities as suitable for cash management purposes, or otherwise telling customers they would always be able to retrieve their cash. In February of 2008, the auction rate market failed, leaving many investors holding long term bonds and tying up funds they needed in the short-term.

The Division alleges that in a number of auction rate issues, Stifel acted as an underwriter, and was aware of the liquidity risks of these securities. The Division further alleges that this information was never communicated to its retail sales force, who sold auction rate securities to its retail customers on the false premise that auction rate securities were "liquid."

Also today, a similar complaint was filed against Stifel, Nicolaus & Company by investigators with the Indiana Securities Division. The Colorado Division of Securities and the Indiana Securities Division worked together and within a multistate task force of state regulators formed by the North American Securities Administrators Association (NASAA) to develop evidence of the company's alleged securities violations.

The administrative complaint filed by the Division Staff is before an administrative law judge, and seeks suspension or revocation of the license of Stifel Nicolaus in Colorado.

No hearing date has yet been scheduled.

A copy of the Complaint can be found at: http://www.dora.state.co.us/securities/enforcement.htm#Administrative

DORA is dedicated to preserving the integrity of the marketplace and is committed to promoting a fair and competitive business environment in Colorado. Consumer protection is our mission.

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Latest Update: Download the Amended Complaint

Click on the icon below to download the 59-page pdf document of the amended complaint that five Wisconsin school districts filed on April 22, 2009.

Latest Update: Case Remanded to State Court

Hon. Rudolph T. Randa, Chief Judge of the United States District Court for the Eastern District of Wisconsin remanded Case No. 08-931; 08-932 to Milwaukee County Circuit Court.

Latest Update: Teachers Find Retirement in Jeopardy

From ABC News, 04/06/09

In Wisconsin, toxic investments could jeopardize teachers' retirement benefits.

To watch the video of this broadcast please click here.

Latest Update: Wall Street crisis snares Main St. schools

Five Wisconsin school districts claim they were misled by advisers and could lose most of $200M investment.

By Poppy Harlow, CNNMoney.com Last Updated: January 21, 2009: 10:34 AM ET

WHITEFISH BAY, Wis. (CNNMoney.com) -- Lehman Brothers. Washington Mutual. And now ... Whitefish Bay Schools?

The global financial crisis that claimed some of the world's biggest banks now has this suburban Milwaukee school district and four others on the brink of losing a hefty $200 million investment.

Two years ago board members from the districts signed off on an investment to fund their teachers' retirement and health care benefits.

Shawn Yde, business director for the Whitefish Bay School District, says he and his board members were told they were making a conservative investment in "AA" and "AAA"-rated bonds. Mark Hujik, from the Kenosha school board, says he and other board members were told they were investing in highly rated, and relatively safe, corporate bonds.

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