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Home > Blog > Missouri Secretary of State Calls Stifel’s ARS Plan Inadequate

Missouri Secretary of State Calls Stifel’s ARS Plan Inadequate

Missouri Secretary of State Robin Carnahan had harsh words for the brokerage firm Stifel, Nicolaus & Company and its plan to give investors holding auction-rate securities only $25,000, or 10%, or their frozen savings. 

On Feb. 11, Carnahan told Stifel it needed to immediately come up with an alternative solution that will buy back all frozen auction-rate securities from clients, many of whom have had their savings frozen since the collapse of the auction-rate market in February 2008.

Last August, a class-action lawsuit was filed against Stifel, Nicolaus & Company and its parent company, Stifel Financial Corp., by investors who claimed the companies deceived them about the investment risks of auction-rate securities and the auction market in which the securities were traded. Specifically, the lawsuit said that Stifel Financial and Stifel Nicolaus sold and represented auction-rate securities as “cash equivalents or better than money market funds.” 

Following the break-down of the auction-rate market one year ago, a number of Wall Street investment firms and banks agreed to buy back auction-rate securities for the prices their clients had paid for them. The buy-back settlements, which totaled more than $50 billion, put to rest state and federal charges that investment firms had improperly marketed and sold auction-rate securities to investors.

Stifel, the third-largest brokerage based in St. Louis, wasn’t part of the settlements, however. Until recently, the firm refused to buy back auction-rate securities from clients, claiming it did nothing wrong. Other regional brokerages, including Raymond James Financial, also have resisted ARS buy-back programs.

Those decisions have had a devastating effect on ARS investors like Glenn Linke, 80, and his wife, Norma, 73. As reported Jan. 11 in the St. Louis Dispatch, the elderly couple had decided to add a first-story bedroom to their house because they were no longer able to easily climb stairs. When the construction bills came due, they called their broker at Stifel Nicolaus, instructing him to sell some of their weekly CDs.

That’s when the Linkes’ were hit with news no investor wants to hear: Their money was frozen. The weekly CDs actually were auction-rate securities. 

The Linke’s story is typical of many investors stuck in auction-rate securities. Today, at least 33 formal complaints have been filed by Stifel’s auction-rate customers with the Missouri Secretary of State’s office. All report that they were promised auction-rate securities would be the “same as cash.”

On Feb. 11, after hearing Stifel’s plan for its auction-rate customers, one investor called Missouri’s Secretary of State to express his frustration. “Ten percent is nothing but an insult,” said the 60-year-old. “If it wasn’t for Stifel’s misleading sales tactics, I would have all of my savings right now.”

In a press statement released in response to Stifel’s auction-rate plan, Secretary of State Carnahan said the following:

 “After nearly a year, Stifel is finally beginning to address this issue but it is too little, too late for those who desperately need their frozen savings. It is time for Stifel to follow the lead of other major investment banks and give their customers the access to their money that was promised. In these uncertain economic times, my office will continue taking the necessary steps to help these investors get their savings back.”

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