Stifel Nicolaus to accelerate buyback of auction-rate securities in settlement with states

Stifel reaches auction-rate securities settlement

ST. LOUIS — Financial services firm Stifel Nicolaus & Co. will complete the buyback of auction-rate securities from individual investors six months early under a settlement reached Monday with Missouri and other states.

The regional brokerage and financial services firm based in St. Louis will return up to $41 million to investors by the end of 2010, with everyone to be paid in full by the end of 2011.

Stifel had originally set a deadline of June 30, 2012, to buy back all auction-rate securities held by its retail investors who bought them prior to the February 2008 collapse of the market for the securities.

Missouri Secretary of State Robin Carnahan said 1,200 Stifel clients nationwide are owed a total of $180 million.

Partial payments will be made to investors as early as Jan. 15, said Carnahan, who oversees securities in the state.

“This is a win for investors, and we’re pleased to have helped investors get their money back a lot sooner,” she said.

The settlement resolves lawsuits or other complaints by Missouri, Indiana, Colorado and other state members of the North American Securities Administrators Association, a Stifel spokesman said.

The settlement announced Monday also requires Stifel to hire a securities-industry expert to oversee its employee training, marketing and selling of nonconventional financial products, so that customers can better understand their potential risks.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt whose interest rates were reset at regular auctions, some as frequently as once a week.

Many investors bought the securities believing they were similar to a money market, a traditionally safe and liquid investment. But they found their funds frozen when the ARS market fell apart last year amid the downturn in the broader credit markets.

A dozen banks and investment firms have agreed to buy back the securities.

Stifel announced a voluntary plan in February to buy back all auction-rate securities held by individual investors. The firm called Monday’s settlement a “significant enhancement” over the voluntary plan.

Under the settlement, Stifel also must work with a bank to loan money to affected investors who need immediate cash. The firm also must pay a $525,000 penalty that will be shared by states participating in the NASAA settlement. Stifel also must pay $250,000 to Missouri and $25,000 to Indiana for their costs to investigate the case.

Those eligible for a buyback are investors who bought ARS through Stifel before the securities’ collapse and continue to hold them at Stifel.