Auction-rate securities suit names Stifel's Cohen, others

March 30, 2009
On March 12, Missouri Secretary of State Robin Carnahan filed a civil enforcement action against St. Louis-based investment firm Stifel Nicolaus and Co. Inc., for allegedly misleading customers who bought auction-rate securities.

Among defendants named in Missouri's lawsuit was Stifel Managing Director Jeffrey Cohen, who is based in the company's Indianapolis office. Cohen is also a member of IUPUI's board of advisers and serves as a trustee for Park Tudor School, where he is co-chairman of its capital campaign. In 1999, IBJ included Cohen in its annual "40 Under 40" list.

Stifel has 3,300 employees and more than 200 offices in the United States and Europe.

Auction-rate securities are long-term bonds that behave like short-term debt. Their interest rates are reset through auctions staged no more than 35 days apart. Once obscure, their market was a victim of the global credit crunch.

The lawsuit alleges more than 1,200 Stifel investors were stuck with $180 million in auction-rate securities they couldn't access for over a year. According to the suit, Stifel told them auction-rate securities were safe, "same as cash," or "like a money market."

The lawsuit calls for Stifel to pay immediate restitution with interest to all its clients who purchased auction-rate securities, plus penalties. Missouri also wants Stifel to make payments for investor education and to reimburse its legal costs.

Stifel CEO Ronald Kruszewski, who was not named in the suit, told the St. Louis Business Journal the market's collapse was at fault, not his firm.

"I am shocked and dismayed that employees were named as defendants," a March 12 article quotes him as saying. "Employees own $10 million in auctionrate securities. To suggest they had any prior knowledge of the market collapse is just plain wrong."
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