Firm Will Return Some of Failed Investment to School District

The Whitefish Bay School District could recover some of its failed investment from at least one of the two firms that are now facing a lawsuit from the district and charges from the US Securities and Exchange Commission.

The SEC announced Tuesday that it is charging “RBC Capital Markets LLC for misconduct in the sale of unsuitable investments to five Wisconsin school districts and its inadequate disclosures regarding the risks associated with those investments,” a news release states.

However, the company agreed to settle the charges involving about $37.3 million of funds from area school districts. RBC Capital Markets agreed to settle the case by paying $30.4 million, which will be split among the five school districts.

"The sales took place despite significant concerns within RBC Capital about the suitability of the product for municipalities like the school districts," the news release states. "Additionally, RBC Capital’s marketing materials failed to adequately explain the risks associated with the investments."

Meanwhile, another company involved in the case

In 2006, the Kimberly, Kenosha, Waukesha, West Allis/West Milwaukee, and Whitefish Bay school districts were convinced by Stifel and Royal Bank of Canada to purchase synthetic CDO products offered by Stifel, Nicolaus & Company and the Royal Bank of Canada, which were represented to be “just like buying U.S. Treasuries for seven years,” according to a news release issued by the attorney representing the five school districts in a lawsuit filed against the financial firms in Milwaukee County Circuit Court. The districts' attorneys and the financial firms were in in early August.

The school districts established trusts that invested $200 million in three transactions from June to December 2006, paid for largely with borrowed funds. According to the SEC’s complaint, Stifel, Nicolaus & Company misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, the investments were a complete failure, but generated significant fees Stifel, Nicolaus & Company, according to a news release issued by the SEC.

Read a response from an attorney representing the area school districts in a post on the Milwaukee Journal Sentinel's education blog.