1 Company Settles with SEC in Waukesha Schools Complaint

Editor's note: Ths article has been updated to include comment from Waukesha Superintendent Todd Gray.

The could recover some of its lost funds after it was one of five Wisconsin school districts that saw millions of dollars disappear in failed investments. The companies that sold the investments to the school districts now face prosecution from the Securities and Exchange Commission.

The SEC announced Tuesday it is charging RBC Capital Markets LLC for "misconduct in the sale of unsuitable investments to five Wisconsin school districts and its inadequate disclosures regarding the risks associated with those investments.”

The company agreed to settle the charges involving about $37.3 million of funds from area school districts. RBC Capital Markets has agreed to pay $30.4 million, which will be split among the five school districts.

"The sales took place despite significant concerns within RBC Capital about the suitability of the product for municipalities like the school districts," the SEC news release states. "Additionally, RBC Capital’s marketing materials failed to adequately explain the risks associated with the investments."

Meanwhile, another company that is involved in the case

In 2006, the Kimberly, Kenosha, Waukesha, West Allis/West Milwaukee, and Whitefish Bay school districts were convinced by Stifel and Royal Bank of Canada to purchase synthetic CDO products offered by Stifel, Nicolaus & Company and the Royal Bank of Canada, which were represented to be “just like buying U.S. Treasuries for seven years,” according to a news release issued by the attorney representing the five school districts in a lawsuit filed against the financial firms in Milwaukee County Circuit Court. The districts' attorneys and the financial firms were in in early August.

The school districts established trusts that invested $200 million in three transactions from June to December 2006, paid for largely with borrowed funds.

The SEC had earlier charged Stifel, Nicolaus & Company for its role in the bad investments. According to the SEC, Stifel, Nicolaus & Company misrepresented the risk of the investments and failed to disclose material facts to the school districts. In the end, the investments were a complete failure, but generated significant fees for Stifel, Nicolaus & Company.

Waukesha School District Superintendent Todd Gray described the news Tuesday afternoon from the SEC as a “strong step in the right direction.”

"I think it justifies our thoughts that these fraudulent investments shouldn’t have been made to us to in the matter that they were,” Gray said.

Gray said he is hopeful that all the funding from the failed investments will come in through the SEC’s actions against the two companies.

“It will be nice to be out from under this,” Gray said. “I think this is one more step in that direction.”

The school district's lawsuit against Stifel, Nickolaus & Company is still pending, Gray said. The outcome of that lawsuit could be dependent on what sanctions the SEC is able to obtain against the company.

Read a response from an attorney representing the area school district’s in an education blog on the Milwaukee Journal Sentinel website.

A document detailing the SEC's charges against RBC is attached to this article.