Stifel, Nicolaus & Co and ex-exec, David Noack have agreed to pay $24.6 million to resolve claims arising from the sale of risky investment products to five Wisconsin school districts prior to the financial crisis of 2008.
The SEC announced the deal in a press release December 8. Under the settlement, Stifel and Noack agreed to jointly forfeit $1.66 million and pay $840,000 in prejudgment interest. Stifel and Noack also agreed to pay penalties of $22 million and $100,000, according to court documents.
Of the $24.6 million that will be paid, the five school districts will receive $12.5 million, according to court papers.
The SEC said that sum, $12.5 million, coupled with prior settlements by the SEC and in private litigation, would fully compensate the school districts for their losses.
The SEC sued Stifel and Noack in 2011, saying they misled five Wisconsin school districts about the risks of investing in synthetic collateralized debt obligations. Synthetic collateralized debt obligations are tied to mortgage-backed securities or credit default swaps and were at the heart of the financial crisis eight years ago.
The districts did not invest directly in the CDOs, instead providing funds to trusts that invested in notes issued by special purpose vehicles affiliated with RBC Capital Markets, the SEC said.
David Noack allegedly persuaded them to make the investments, reportedly telling the districts it would take “15 Enrons” for them to lose money, SEC said.
The investments were a complete failure, causing the districts to lose over $200 million as the investments declined in value in 2007 and 2008, amid the housing market downturn and financial crisis, according to the SEC.
RBC, a unit of Royal Bank of Canada, in 2011 reached a $30.4 million settlement with the SEC over its role in misconduct relating to the sale of the investments.
According to FINRA Broker Check, David Noack was registered with Robert W. Baird & Co. in Milwaukee, WI from 03/2007 – 09/2011 and he was registered with Stifel, Nicolaus & Co. in Milwaukee, WI from 04/2000 – 03/2007. He has four disclosures listed on his Broker report including a customer dispute in 2012 for allegations of breach of fiduciary duty, fraudulent non-disclosure /concealment and unjust enrichment. Noack has been permanently barred from working in the securities industry by the SEC.
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