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Judge says bank can pursue suit against broker

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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.

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  1. CCHP's real accomplishment is the 2015 law signed by Gov Pence that basically outlaws any annexation that is forced where a 65% majority of landowners in the affected area disagree. Regardless of whether HP wins or loses, the citizens of Indiana will not have another fiasco like this. The law Gov Pence signed is a direct result of this malgovernance.

  2. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  3. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  4. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

  5. Here's an idea...how about we MORE heavily regulate the law schools to reduce the surplus of graduates, driving starting salaries up for those new grads, so that we can all pay our insane amount of student loans off in a reasonable amount of time and then be able to afford to do pro bono & low-fee work? I've got friends in other industries, radiology for example, and their schools accept a very limited number of students so there will never be a glut of new grads and everyone's pay stays high. For example, my radiologist friend's school accepted just six new students per year.

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