U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23700 / December 7, 2016
Securities and Exchange Commission v. Stifel, Nicolaus & Co., Inc., et al., Civil Action No. :11-cv-755 (E.D. Wis. filed Aug. 10, 2011)
Stifel, Nicolaus and Former Stifel Executive Pay Over $24.5 Million and Admit Wrongdoing in Connection with the Sale of Synthetic CDOs to Wisconsin School Districts
The SEC announced today that St. Louis, Missouri-based broker-dealer, Stifel, Nicolaus & Co., Inc. and its former Senior Vice President David W. Noack agreed to admit wrongdoing and pay over $24.5 million to resolve an SEC enforcement action involving the sale of synthetic collateralized debt obligations (CDOs) to five Wisconsin school districts.
The SEC's complaint, filed on August 10, 2011 in the U.S. District Court for the Eastern District of Wisconsin, alleged that Stifel and Noack harmed five Wisconsin school districts by selling them $200 million in unsuitably risky and complex synthetic CDOs funded largely with borrowed money. Ultimately, the synthetic CDOs failed and the five Wisconsin school districts suffered a complete loss of their cash investment.
On December 6, 2016, the Honorable Charles N. Clevert, Jr. entered a final judgment permanently enjoining Stifel and Noack from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and ordering Stifel and Noack to jointly pay disgorgement and prejudgment interest of $2.44 million and to each pay civil penalties of $22.5 million and $100,000, respectively. The judgment also requires Stifel to distribute $12.5 million of the ordered disgorgement and penalties to the injured school districts. This distribution, along with the prior Fair Fund distribution of $30.4 million in a related case instituted in September 2011 and settlements obtained in the school districts' private lawsuit, will fully compensate the five Wisconsin school districts for their losses.
In addition, the final judgment also recites Stifel's and Noack's admissions to misconduct that harmed the five Wisconsin school districts. Section VI of the final judgment reflects that Stifel and Noack admitted, among other things, that they made certain material misstatements to the school districts that overstated the safety and downplayed the risks of investing in CDOs, and failed to disclose certain material facts, and did not independently perform any meaningful suitability analysis with respect to the CDO investments.
The court's entry of the final judgment resolves this litigation in its entirety.
Noack also has consented to the entry of an SEC order, based on the court's entry of judgment, which imposes industry and penny stock bars, with the right to reapply after five years.
The SEC's investigation that led to the charges against Stifel and Noack was conducted by Kevin Guerrero, Keshia W. Ellis and Ivonia K. Slade in Washington, D.C. and Jeffrey A. Shank and Anne C. McKinley in the Chicago Regional Office. The litigation was handled by Steven C. Seeger, Robert M. Moye, Alyssa A. Qualls, Ariella O. Guardi, Kevin A. Wisniewski, and Kristine Rodriguez in the Chicago Regional Office.