ILNews

Judge says bank can pursue suit against broker

Back to TopCommentsE-mailPrintBookmark and Share

The Peoples State Bank of Ellettsville can move forward with its lawsuit against broker Stifel Nicolaus & Co., which the bank claims duped it into investing $13 million in auction-rate securities just before those markets froze up.

Federal Judge Richard Young granted Peoples the victory March 14 by ruling that the bank can sue Stifel on its claims that the broker violated the Indiana Securities Act and committed fraud.

The judge dismissed a lesser breach-of-contract claim on Stifel’s attempt to get him to throw out Peoples’ entire case on summary judgment.

The tiny bank west of Bloomington sued St. Louis-based Stifel in late 2010. Its suit claims a Stifel broker, Michael Sullivan, called the bank in early November 2007 and within days convinced Peoples to spend $7.5 million on a security backed by federal student loans. Over the next two months, Peoples poured nearly $6.2 million more into the auction-rate investments.

Peoples’ officials never reviewed a prospectus before placing the order, according to the bank’s lawsuit, nor did they realize their investment is subordinate to another investor who bought securities on the same batch of student loans.

“Unlike federal case law, the Indiana Securities Act remains silent on the duty to read,” Young wrote. “Even so, the underlying policy of full disclosure should be considered here, too. The Act principally requires broker-dealers to disclose all material information.”

Peoples claims the auction-rate securities were marketed by Stifel as liquid, investment-grade securities that could be sold at any seven-day or 28-day auction rate. In addition, Peoples alleges that Sullivan represented them as safe, well-collateralized and guaranteed by the federal government.

Because of the market collapse, Peoples now alleges it has long-term securities that generate no interest payments and don’t mature for 35 years.

The bank's purchases represented 15 percent of its investments at the time, according to data from the Federal Deposit Insurance Corp. Peoples has 11 branches in Monroe, Brown, Owen and Morgan counties, according to the FDIC.

Within weeks of Peoples' making the deal, investors across the country bailed on the monthly auctions of the securities, which had been sold as ways to invest in corporate and municipal debt, and for those debt issuers to obtain more attractive interest rates.

The failure of the auctions kicked Peoples’ investments into default status, in which it earns little to no interest on its investments. It still has $11.8 million tied up in the auction-rate securities.

Peoples is suing Stifel in U.S. District Court in Indianapolis.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. I have had an ongoing custody case for 6 yrs. I should have been the sole legal custodial parent but was a victim of a vindictive ex and the system biasedly supported him. He is an alcoholic and doesn't even have a license for two yrs now after his 2nd DUI. Fast frwd 6 yrs later my kids are suffering poor nutritional health, psychological issues, failing in school, have NO MD and the GAL could care less, DCS doesn't care. The child isn't getting his ADHD med he needs and will not succeed in life living this way. NO one will HELP our family.I tried for over 6 yrs. The judge called me an idiot for not knowing how to enter evidence and the last hearing was 8 mths ago. That in itself is unjust! The kids want to be with their Mother! They are being alienated from her and fed lies by their Father! I was hit in a car accident 3 yrs ago and am declared handicapped myself. Poor poor way to treat the indigent in Indiana!

  2. The Indiana DOE released the 2015-2016 school grades in Dec 2016 and my local elementary school is a "C" grade school. Look at the MCCSC boundary maps and how all of the most affluent neighborhoods have the best performance. It is no surprise that obtaining residency in the "A" school boundaries cost 1.5 to 3 times as much. As a parent I should have more options than my "C" school without needing to pay the premium to live in the affluent parts of town. If the charter were authorized by a non-religious school the plaintiffs would still be against it because it would still be taking per-pupil money from them. They are hiding behind the guise of religion as a basis for their argument when this is clearly all about money and nothing else.

  3. This is a horrible headline. The article is about challenging the ability of Grace College to serve as an authorizer. 7 Oaks is not a religiously affiliated school

  4. Congratulations to Judge Carmichael for making it to the final three! She is an outstanding Judge and the people of Indiana will benefit tremendously if/when she is chosen.

  5. The headline change to from "religious" to "religious-affiliated" is still inaccurate and terribly misleading.

ADVERTISEMENT