Colorado securities regulators are seeking to strip or suspend Stifel, Nicolaus & Co.’s state securities license, according to a complaint made Thursday.
Regulators allege the St. Louis firm fraudulently marketed debt instruments called auction-rate securities as a safe and liquid cash alternative.
They want the firm to return about $14 million in notes sold to Colorado clients before auction-rate markets froze up in February 2008.
“It is an administrative action to revoke or suspend their license,” said Jerry Rome, deputy securities commissioner. “We obviously think Stifel acted inappropriately and illegally.”
Auction-rate securities are long-term bonds that set interest rates every seven, 28 or 35 days.
For several years, those markets operated smoothly, in part because investment banks would step in whenever buyers were scarce. When that support disappeared in early 2008, auctions failed, leaving retail investors stuck with securities they couldn’t easily sell.
Regulators argue that retail investors, who typically were seeking a short-term place to park money, were not adequately informed of the risk involved.
Stifel didn’t respond to interview requests. In June, the firm said 95 percent of eligible clients had accepted a voluntary offer to receive the higher of 10 percent of the notes or $25,000 in repayment a year over the next three years.
“It is important to recognize that we didn’t have access to material information regarding the unexpected collapse of the (auction-rate securities) market which, tellingly, many of the major market participants enjoyed,” Stifel chairman and chief executive Ronald Kruszewski said in a statement.
Several large firms have settled. In early September, RBC Capital agreed to repurchase $264 million in auction-rate securities from investors in the state.
Merrill Lynch in June agreed to repurchase $256 million in the frozen notes in a larger $26 billion program. In May, Wachovia agreed to buy back $157 million from Colorado investors.
Stifel operates branches in Denver, Greenwood Village, Pueblo, Fort Collins, Colorado Springs and Glenwood Springs. It acquired the well-known Denver investment bank Hanifen Imhoff in 1999.
Stifel has 30 days to respond to the complaint. A hearing date will be set Nov. 17, Rome said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
