RBC paying $30.4M to settle SEC charges
Wednesday, September 28, 2011
WASHINGTON (AP) — RBC Capital Markets has agreed to pay $30.4 million to settle federal civil charges of misleading five Wisconsin school districts that lost $200 million invested in risky securities.
The Securities and Exchange Commission announced the settlement Tuesday with the brokerage firm, which is owned by the Royal Bank of Canada.
The SEC said RBC Capital Markets didn’t fully disclose the risks in 2006, when the school districts purchased the investments.
The agency said RBC is paying a $22 million fine, and $8.4 million in restitution and interest. The SEC will distribute all those funds to the districts.
New York-based RBC neither admitted nor denied wrongdoing.
The SEC last month sued another brokerage firm, Stifel Nicolaus & Co., over sales of the same investments to the five school districts. RBC put the investment deals together and St. Louis-based Stifel — which was the school districts’ financial adviser — sold the investments to them, the SEC said.
The school districts sued Stifel and the Royal Bank of Canada in 2008 in Milwaukee County Circuit court.
Stifel Financial Corp., the brokerage firm’s parent, is disputing the SEC’s allegations.
The settlement is the latest action brought by the SEC, which has charged several brokerages with misleading investors about complex securities that contributed to the 2008 financial crisis.
In July 2010, Goldman Sachs agreed to pay $550 million to settle civil fraud charges that it misled buyers of mortgage-related investments. JPMorgan Chase & Co. agreed in June to pay $153.6 million to settle similar charges.
All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.
The Wisconsin school districts had borrowed most of the money for the investments and hoped to use the profits to meet obligations to their pensions, health care and life insurance programs, the SEC said.
School district officials were told the investments carried a AA- credit rating, which was high enough to meet their investment requirements, the SEC said.
The five districts are Kenosha Unified School District No. 1, Kimberly Area School District, School District of Waukesha, West Allis-West Milwaukee School District and School District of Whitefish Bay.
RBC spokesman Kevin Foster said the firm provided the investments to Stifel, which “in turn misrepresented and sold the product to Wisconsin school districts.”
“We did not know that Stifel was misrepresenting the products’ risks to its clients and would not have participated in the transaction had we had full knowledge of Stifel’s communication with its client,” Foster said in a statement.
Stifel disputed that position. In its own statement issued Tuesday, the firm said “the SEC found not only that RBC was aware of (the) risks but that RBC disguised the risks in the marketing materials provided to the school districts and Stifel. We continue to believe that if RBC’s product was as represented, it would have been suitable for the districts.”
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