OCTOBER 1, 2009, 2:15 P.M. ET
From the
Wall Street JournalRegulators in Colorado and Indiana have charged brokerage firm Stifel Financial Corp. (SF) with fraudulently selling auction-rate securities in those states, a Colorado regulator said.
The states' securities divisions filed complaints accusing the St. Louis-based broker-dealer of giving investors a false sense of security about the investments without disclosing the risks, according to a statement from the Colorado Department of Regulatory Agencies.
In recent trading, Stifel shares were down 3.2% at $53.12 amid a broad market decline.
ARS are debt instruments whose interest rates are meant to be reset periodically at daily, weekly or monthly auctions. But as the auctions began failing in February 2008, interest rates rose while investors were locked into long-term investments that had been promoted as safe and liquid. Dozens of states have reached settlements with the nation's largest financial institutions in the past year to resolve charges they misled investors about the liquidity risks of the ARS they underwrote.
Stifel, Nicolaus & Co. presented ARS as "liquid, short-term investments" to Colorado investors "without discussing the risks," said Colorado Securities Commissioner Fred Joseph. The broker assured investors the investments would "always be liquid" when ARS in fact faced "significant, inherent liquidity risks," according to the complaint.
The Colorado commissioner accused Stifel brokers of "repeatedly and persistently" misrepresenting the ARS liquidity risks, comparing them to money-market funds. The company had told customers "they would always be able to retrieve their cash."
A Stifel official couldn't immediately be reached for comment.
-By Mike Barris, Dow Jones Newswires; 212-416-2330; mike.barris@dowjones.com
