Wisconsin School Districts Sue Royal Bank of Canada and Stifel Nicolaus and Co. in Lawsuit Over Credit Default Swaps
Five school districts in Wisconsin are suing Stifel Nicolaus & Co., Inc. and Royal Bank of Canada (RBC) for losses incurred after the bank and brokerage firm sold the districts “Credit Default Swaps,” (also called “CDS" or complex credit derivatives) worth $200 million resulting in some $150 million in losses. The school districts claim that the bank and brokerage firm told them that the CDS investments were safe even though they knew otherwise.
The school districts involved in the lawsuit include Kimberly Area School District, Kenosha Unified School District, School District of Waukesha, Whitefish Bay School District, and West Allis – West Milwaukee School District. They are seeking full recovery of their money. Attorney Robert Kantas of the stockbroker fraud firm law firm Shepherd Smith Edwards & Kantas LTD LLP is representing the school districts.
The districts’ lawsuit accuses Royal Bank of Canada and Stifel Nicolaus of either negligently or purposely misrepresenting the investments and withholding key information. The plaintiffs’ complaint names specific times when they were told that “15 Enrons” would need to happen before the districts would be affected, none of the CDO’s had sub-prime debt, and the investments were “safe” and “conservative.” The districts later found out that some of the CDOs they purchased included leases, home equity loans, commercial mortgage loans, residential mortgage loans, credit card receivables, auto finance receivables, and other debt obligations.
The school districts say that government legislation had encouraged them to set up investment funds to pay for certain liabilities, such as pensions and employee wages. The investment funds were supposed to lessen the financial burden on taxpayers. The districts claim that the legislation made them easy targets for banks, brokerage firms, and investment advisers.
Related Web Resources:
Wisconsin schools sue RBC for losses, Financial Post, October 1, 2008