Wis. school districts settle over investments

MILWAUKEE (AP) -- Five Wisconsin school districts have settled with a St. Louis-based financial firm they sued over investments that tanked in the global economic collapse, the districts' attorneys said Monday.

Under the settlement, Stifel Nicolaus & Co. Inc. on Monday paid $13 million to the districts - Waukesha, West Allis-West Milwaukee, Whitefish Bay, Kenosha and Kimberly, the attorneys said in a news release.

In addition, the districts' attorneys said Stifel provided a standby letter of credit for an additional $9.5 million to be paid when Stifel resolves a related case with the U.S. Securities and Exchange Commission, the Milwaukee Journal Sentinel  reported.

The five districts' $200 million worth of investments lost nearly all their value during the economic crisis. In 2008, the school districts sued Stifel and the Royal Bank of Canada, claiming the deals were fraudulently sold as safe investments. Bankers with Stifel helped sell the districts complex financial instruments known as collateralized debt obligations, or CDOs, in 2006.

The Royal Bank of Canada marketed and sold to trusts created by the districts the $200 million worth of CDOs, for which the districts contributed $37.3 million of their own funds and borrowed the rest.

The districts had intended to use money from the investments to pay for health and pension benefits promised to retirees.

The districts borrowed much of the money for the investments - either on their own or through trusts - with the expectation that what had been billed as safe investments would generate enough money to pay interest and benefits costs. But the CDOs became worthless after the global markets collapsed in 2008.