CONTACT:
Craig Peterson
Zigman Joseph Stephenson
309 N Water Street, Suite 315
Milwaukee, WI 53202-7908
414-273-4680
info@schoollawsuitfacts.comFOR IMMEDIATE RELEASE
Wednesday, August 20, 2008
School Districts Misled on OPEB Investments
Claims Could Surpass $120 million
A confidential report from attorneys engaged by five Wisconsin school districts and their investment trusts concludes that the districts were victims of a sophisticated investment scheme. The report names
The Royal Bank of Canada Europe, Ltd.,
Stifel, Nicolaus & Company, Inc., and the districts’ financial advisor, David W. Noack, among others, as involved in a complex and convoluted investment, which is believed to have caused losses to the districts in the tens of millions of dollars.
The investments involved products known as
Collateralized Debt Obligations (CDOs) and a Credit Default Swap (CDS) with the Royal Bank of Canada. These investments were sold to the districts as a safe solution to their Other Post-Employment Benefits (OPEB) liability – a solution that would not create any additional burden on the taxpayers.
The districts,
Waukesha,
Whitefish Bay,
West Allis – West Milwaukee,
Kenosha, and
Kimberly, asked the law firms,
Shepherd, Smith, Edwards & Kantas, LLP a Houston, Texas firm that specializes in securities fraud cases, and Milwaukee firm
Kravit, Hovel & Krawczyk, SC to study the possibility they had been defrauded in these transactions.
“Our lawyers and their expert, Dr. Craig McCann, of the
Securities Litigation and Consulting Group in Washington, D.C., concluded that these transactions were opaque and believed to be deliberately so. There were no documents signed by the districts or even presented to the districts prior to closing that disclosed the true risk of the deal,” said Shawn Yde, Director of Business Services of the Whitefish Bay district. “There is no way the districts knew or could have known that they were being victimized.”
By one measure, current valuations suggest that the districts’ combined investment of $200 million may have already declined by as much as $120 million. “These investment banks have violated the public’s trust and we are recommending to our boards to take action to make them accountable,” said Yde.
The Districts are Outraged
· “Each district was assured that its funds would be invested in an AA/AAA-rated bond portfolio,” said Bill Johnston, Executive Director of Business for the Kenosha schools. “In fact, we just learned that the investments were orders of magnitude more risky than a BBB-rated portfolio, and were many times as risky as an AA-rated portfolio. This is extraordinary risk, none of which was ever disclosed to the districts.”
· Bob Mayfield, Superintendent of Schools for the Kimberly district said, “It looks like misrepresentations were made to induce us to follow the firms’ investment advice. We believed them and we relied on them.”
· “We were unknowingly sold a risky and expensive plan to partially address our OPEB liabilities. We are shocked and angry, and Waukesha will do everything in its power to get our money back,” said Jason Demerath of the Waukesha district.
· “The districts have nothing to hide,” said Deborah Rouse, Director of Business Services for the West Allis – West Milwaukee districts. “As public entities, we conduct the people’s business in the open. At all times we believed we were acting in the best interest of our citizens, and in accordance with Wisconsin state statutes. We were victimized by these sophisticated financial institutions and we are recommending action.”
· “We were assured in the sales pitch that numerous other school districts were on board,” said Yde. “It is just impossible to believe that what we thought were conservative, prudent investments could lose 60% of their value in 18 months.”
The districts are considering authorizing the filing of a lawsuit seeking rescission, actual and exemplary damages, costs and fees. Each district will be considering this recommendation in meetings over the next few weeks.
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