School Lawsuit Facts - Press Releases

2010-01-28T14:59:00.001-08:00

CONTACT:
Craig Peterson
Zigman Joseph Stephenson
414.978.8024 (office)
414.614.4680 (cell)
craig.peterson@zjs.com

FOR IMMEDIATE RELEASE

MOTIONS TO DISMISS DENIED IN SCHOOL DISTRICTS’ CLAIMS
AGAINST STIFEL NICOLAUS AND ROYAL BANK OF CANADA

Milwaukee, WI: January 28th, 2010 - In a decision announced in court today, Judge William Brash III denied the motions of Stifel Nicolaus and the Royal Bank of Canada defendants to dismiss the Amended Complaint against them, brought by the Kenosha, Kimberley, Waukesha, West Allis/West Milwaukee, and Whitefish Bay school districts and their investment trusts. The Amended Complaint filed last year alleges that the school districts and their trusts were defrauded when they invested $200 million in notes backed by synthetic CDOs. That investment rapidly declined in value, and is worth less than $10 million today.

“This means that discovery can proceed, and trial will be scheduled on all claims” said Stephen Kravit, one of the attorneys for the districts. “Judge Brash rejected all attacks on the sufficiency of the complaint, and all claims remain to be tried, including claims that seek triple damages and attorney fees.”

“We are pleased with Judge Brash’s ruling, and look forward to our day in court” said Shawn Yde, director of business services for Whitefish Bay schools.

“The defendants won nothing in this round” said Robert Kantas, one of the attorneys for plaintiffs. “Judge Brash’s ruling is the second setback for defendants, the first being their failed attempt to move the case to federal court.” In late 2008, federal judge Rudolph P. Randa declined to allow the Stifel Nicolaus and Royal Bank of Canada defendants to remove this case to federal court.

It is expected that a date for a jury trial will be set within the next year.

Further information: www.schoollawsuitfacts.com.

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2009-10-01T14:17:00.001-07:00

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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2009-04-23T08:00:00.001-07:00

Contact:
Craig Peterson
414.978.8024
info@schoollawsuitfacts.com

April 22nd, 2009

FOR IMMEDIATE RELEASE

School Districts File Amended Complaint in Investment Fraud Case

Milwaukee - Five school districts who purchased $200 million in what they were told was a conservative investment similar to buying a portfolio of corporate bonds from firm Stifel Nicolaus and the Royal Bank of Canada in 2006, filed an amended fraud complaint in Milwaukee County circuit court today. This follows the remand of the case to state court, which was ordered by U.S. District Judge Rudolph Randa at the request of the school districts in an opinion filed April 10, 2009.

The West Allis/West Milwaukee, Kenosha, Waukesha, Whitefish Bay and Kimberly school districts originally filed their suit claiming securities fraud last fall. Lawyers for James Zemlyak, Chief Operating Office of Stifel Nicolaus, had removed the case to federal court claiming Zemlyak was a resident of Missouri. Judge Randa found that Zemlyak was in fact domiciled in Wisconsin, where his family lives, and where he built a $3 million home and has four cars registered.

The amended complaint filed today "crystallizes and clarifies the facts concerning this complex investment, and adds an important claim" said Stephen Kravit, on of the attorneys for the districts. "It turns out that the trusts set up by the districts for this investment were not qualified to purchase these unregistered securities, and it was illegal for Stifel and RBC to sell them to these investors" Kravit said. "The districts are entitled to get all of the money they originally paid, $200 million, back from the sellers."

The amended complaint says that what the districts learned they paid $200 million for was a group of unregistered synthetic credit derivatives, structured in a risky, complex fashion, which included what are now called "toxic" assets, such as subprime loans and credit card debt. The amended complaint states the districts' investments in these assets have now declined in value "by more than $190 million."

"Royal Bank of Canada was responsible for qualifying the investors here, and providing a suitable investment for the districts" Kravit said, "and they failed miserably on both counts."

The case is assigned to Milwaukee County Circuit Judge David Hansher.

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2009-04-10T13:28:00.000-07:00

Contact:
Craig Peterson
414.978.8024
info@schooollawsuitfacts.com

FOR IMMEDIATE RELEASE

Wisconsin School Lawsuit Case Remanded to State Court
Claims Could Reach $200 million

Milwaukee: April 10, 2009 - Hon. Rudolph T. Randa, Chief Judge of the United States District Court for the Eastern District of Wisconsin today remanded Case No. 08-931; 08-932 “School Districts v. Stifel et al” to Milwaukee County Circuit Court.

Five Wisconsin school districts filed the suit last year in Milwaukee County against Stifel, Nicolaus & Company, Inc., its CFO James M. Zemlyak, and the Royal Bank of Canada Europe Ltd. The districts claim losses of $200 million from investments marketed by the defendants to fund the districts’ Other Post-Employment Benefit [OPEB] liabilities.

Defendants later requested the case be heard in federal court. Judge Randa’s ruling today returns the case to circuit court.

The five Wisconsin school districts are the Kenosha Unified School District, Kimberly Area School District, School District of Waukesha, West-Allis-West Milwaukee School District and the Whitefish Bay School District.

The school districts retained Shepherd, Smith, Edwards & Kantas, LLP of Houston and Kravit, Hovel & Krawczyk, SC of Milwaukee to represent them.

“This is the school districts' first victory on the way to righting the wrongs done to their taxpayers, schools and teachers by Stifel Nicolaus and the Royal Bank of Canada, which promoted, packaged and sold these toxic investments,” said Stephen E. Kravit of Kravit, Hovel & Krawczyk.

Reporters are invited to visit www.schoollawsuitfacts.com, a website containing links to news stories, press releases, and court documents for additional information.

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2008-09-18T09:33:00.000-07:00

CONTACT:
Craig Peterson
Zigman Joseph Stephenson
309 N Water Street, Suite 315
Milwaukee, WI 53202-7908

414-273-4680
info@schoollawsuitfacts.com

FOR IMMEDIATE RELEASE
Wednesday, August 20, 2008

School Districts Misled on OPEB Investments
Claims Could Surpass $120 million

A confidential report from attorneys engaged by five Wisconsin school districts and their investment trusts concludes that the districts were victims of a sophisticated investment scheme. The report names The Royal Bank of Canada Europe, Ltd., Stifel, Nicolaus & Company, Inc., and the districts’ financial advisor, David W. Noack, among others, as involved in a complex and convoluted investment, which is believed to have caused losses to the districts in the tens of millions of dollars.

The investments involved products known as Collateralized Debt Obligations (CDOs) and a Credit Default Swap (CDS) with the Royal Bank of Canada. These investments were sold to the districts as a safe solution to their Other Post-Employment Benefits (OPEB) liability – a solution that would not create any additional burden on the taxpayers.

The districts, Waukesha, Whitefish Bay, West Allis – West Milwaukee, Kenosha, and Kimberly, asked the law firms, Shepherd, Smith, Edwards & Kantas, LLP a Houston, Texas firm that specializes in securities fraud cases, and Milwaukee firm Kravit, Hovel & Krawczyk, SC to study the possibility they had been defrauded in these transactions.

“Our lawyers and their expert, Dr. Craig McCann, of the Securities Litigation and Consulting Group in Washington, D.C., concluded that these transactions were opaque and believed to be deliberately so. There were no documents signed by the districts or even presented to the districts prior to closing that disclosed the true risk of the deal,” said Shawn Yde, Director of Business Services of the Whitefish Bay district. “There is no way the districts knew or could have known that they were being victimized.”

By one measure, current valuations suggest that the districts’ combined investment of $200 million may have already declined by as much as $120 million. “These investment banks have violated the public’s trust and we are recommending to our boards to take action to make them accountable,” said Yde.

The Districts are Outraged

· “Each district was assured that its funds would be invested in an AA/AAA-rated bond portfolio,” said Bill Johnston, Executive Director of Business for the Kenosha schools. “In fact, we just learned that the investments were orders of magnitude more risky than a BBB-rated portfolio, and were many times as risky as an AA-rated portfolio. This is extraordinary risk, none of which was ever disclosed to the districts.”

· Bob Mayfield, Superintendent of Schools for the Kimberly district said, “It looks like misrepresentations were made to induce us to follow the firms’ investment advice. We believed them and we relied on them.”

· “We were unknowingly sold a risky and expensive plan to partially address our OPEB liabilities. We are shocked and angry, and Waukesha will do everything in its power to get our money back,” said Jason Demerath of the Waukesha district.

· “The districts have nothing to hide,” said Deborah Rouse, Director of Business Services for the West Allis – West Milwaukee districts. “As public entities, we conduct the people’s business in the open. At all times we believed we were acting in the best interest of our citizens, and in accordance with Wisconsin state statutes. We were victimized by these sophisticated financial institutions and we are recommending action.”

· “We were assured in the sales pitch that numerous other school districts were on board,” said Yde. “It is just impossible to believe that what we thought were conservative, prudent investments could lose 60% of their value in 18 months.”

The districts are considering authorizing the filing of a lawsuit seeking rescission, actual and exemplary damages, costs and fees. Each district will be considering this recommendation in meetings over the next few weeks.

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