Saturday, March 14, 2009

Carnahan Files Civil Action Against Stifel

Missouri Secretary of State Robin Carnahan - Press Release

Action Aims to Return Frozen Savings to Hundreds of Investors

SAINT LOUIS, MO - Secretary of State Robin Carnahan, working with the Missouri Attorney General's Office, filed a civil enforcement action today against investment firm Stifel, Nicolaus & Company, Incorporated, for misleading their customers who bought auction rate securities. Over 1,200 investors were left holding $180 million in frozen securities they have not been able to access for over a year.

The action, filed March 12, alleges that Stifel, Nicolaus & Company and Stifel Financial Corporation, as well as certain individuals, violated the Missouri Securities Act and Missouri Merchandising Practices Act. Hundreds of Missourians bought investments that Stifel told them were safe, "same as cash" or "like a money market."

"Other financial institutions across the country did the right thing and made their investors whole, but Stifel has refused to guarantee that they will take care of their customers," Carnahan said. "Investors call my office every week and desperately need access to their savings. My office is taking action to ensure these investors are made whole as quickly as possible."

The North Carolina Secretary of State, Elaine Marshall, commented that this action will benefit investors all across the country. "Some time ago, our Securities Division determined that there are Stifel, Nicolaus & Company investors in North Carolina who continue to be adversely affected by the collapse of the ARS markets in February 2008," said Marshall. "We strongly support Secretary Carnahan's vigorous efforts to help Stifel's ARS investors in North Carolina, Missouri, and across the country, and we look forward to working with the Missouri Secretary of State's Securities Division to make all those investors financially whole."

When the auction rate market collapsed in February 2008, investors were left without access to their money. The action alleges that even though Stifel was aware that conditions surrounding the ARS market were deteriorating, Stifel neglected to inform its customers of the risk to their savings. After the auctions stopped, complaints began to pour into the Secretary of State's Office.

The lawsuit calls for Stifel to pay immediate restitution with interest to all auction rate securities purchasers; pay penalties; make payments to the state that will go toward investor education; and reimburse the state for its legal and investigative costs.

"This lawsuit asserts a very simple concept: Stifel misled consumers about a financial product it was selling," said Doug Ommen, Chief Counsel of the Attorney General's Consumer Protection Division. "As a result of Stifel's misrepresentations, consumers have undergone tremendous hardship."

Although Stifel recently announced it would buy back these securities over the next three years, it refuses to make any guarantees, stating that the offer is contingent on "market conditions and future events." For investors like Grant Medlin, the offer provides little comfort. "Stifel's buyback announcement gives me no guarantee about when or if I'll get my savings," said Medlin, a 46 year-old investor and business owner from Franklin County, Missouri. "I'm glad the Secretary of State's Office is fighting to get my money back."

Stifel sold auction rate securities to investors all over the country. Working with the North American Securities Administrators Association, at least six states are investigating Stifel's sales practices.

"State and federal regulators have been successful in providing investor relief for those who bought ARS from many of the firms that acted as underwriters in the now-frozen auction rate securities market," Secretary of the Commonwealth of Massachusetts William F. Galvin said, "but regulators across the nation must continue our efforts, as in Missouri, to assist those thousands of investors who purchased these auction rate securities and whose assets remain frozen."

Last year, investment banks across the country agreed to buy back auction rate securities from their clients. In Missouri, Wachovia Securities and Commerce Bank worked with the Secretary of State's Office to return $9 billion to over 40,000 investors.

For more information regarding investments and fraud protection, visit the Secretary of State's online Missouri Investor Protection Center at or call the toll free Investor Protection Hotline at 1-800-721-7996.

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