Unified Can Try to Recoup Lost

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Page 1 of 5Kenosha News | Unified can try to recoup lost money

4/12/2011http://www.kenoshanews.com/home/unified_can_try_to_recoup_lost_money_7234118.html



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Unified can try to recoup lost money

Judge won’t dismiss any of the 12 counts in school districts’ investment lawsuitBY TERRY [email protected]





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A lawsuit filed by Kenosha Unified and four other districts to recover millions lost inan investment will continue after a Milwaukee County Circuit Court judge deniedmotions by investment firms to dismiss it.

Judge William Brash denied the dismissal motions Thursday, which had been filedby attorneys of Stifel Nicolaus and the Royal Bank of Canada in response to the districts’ lawsuit filedlast year. The other districts suing the firms include Kimberly, Waukesha, West Allis and Whitefish

Bay School districts.

The districts had invested a combined $200million in collateralized debt obligation bondsthrough Stifel Nicolaus. They have lost at least$190 million combined. According to attorneysrepresenting the districts, their investment isvalued at less than $10 million. Kenosha Unified’sportion of the investment was $37.5 million, anamount last valued at an estimated $98,000.

“The judge denied all their motions to dismiss,”

said Steve Kravit, an attorney representing thedistricts. “The defendants will need to answer bythe end of next month and it is expected there willbe a trial within the year.”

Kravit added all claims brought by the districts inthe suit remained to be tried, “including claimsthat seek triple damages and attorney fees.”

A dozen counts

The districts’ lawsuit includes a dozen counts thatallege they were defrauded by the firms. The districts seek to recover all of the money they investedand subsequently lost.

The investments were meant to bolster post-retirement teacher benefits through a Stifel product.

The school districts maintain the firm misled them into buying what they thought were AA- and AAA-rated bonds that would pay off by December 2013. Instead, the districts bought risky credit defaultswaps, which are insurance plans taken out between two parties, with one party paying money asinsurance in case a bond defaults, while another party agrees to pay money if it does.

A nine-page Power Point presentation shown to all five districts and previously obtained by theKenosha News showed the credit default swaps had an average rating of BBB+. Board membersmaintained that information was glossed over while they repeatedly were assured the investment wasconservative and safe. Stifel-Nicolaus has argued the school districts signed papers acknowledgingthey had legal representatives and advisers who went over the investment.





Stifel responds

Dan Callahan, a spokesman for Stifel Nicolaus, said the litigation is still in its early stages and thedenial of the motions means Stifel Nicolaus and the Royal Bank of Canada will again formallyrespond to the lawsuit now going forward.

In a statement, Callahan said the districts’ complaint, however, contained inaccuracies and “fails to

paint an accurate picture of Stifel’s limited role in the transactions.”

“There were many parties involved in the creation and review of the investments, many of whom thedistricts have chosen not to sue, including the districts’ legal advisers and school board members,” hesaid.

Callahan also alluded to the involvement of an Irish bank, Depfa, that provided loans for the trustsholding the funds for the post-retirement benefits.

“Stifel was placement agent and had no role in creating the investment, monitoring it, orrecommending changes to the investment,” he said.

Depfa officials, who are not part of the lawsuit, have said they played no role in the investmentdecisions made on behalf of the trusts.

Callahan maintains the investment, which was created by Royal Bank of Canada, was AA- rated atthe time of purchase and was operating as expected at the time Stifel terminated its relationship withthe districts more than two years ago.

“The worldwide financial crisis has caused the problems the districts are now experiencing,” he said.

Kenosha Unified School Board President Pam Stevens said the judge’s decision reflects what boardmembers and their attorneys believed all along.

“We were positive going in there and we’re really glad the judge sees what we see — that we weredefrauded,” she said. “This is a really positive step for us. We’re happy. It couldn’t have gone betterand that all 12 counts are going through,” she said. “That’s a great outcome for us.”

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Unified Can Try to Recoup Lost