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

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. The sad thing is that no fish were thrown overboard The "greenhorn" who had never fished before those 5 days was interrogated for over 4 hours by 5 officers until his statement was illicited, "I don't want to go to prison....." The truth is that these fish were measured frozen off shore and thawed on shore. The FWC (state) officer did not know fish shrink, so the only reason that these fish could be bigger was a swap. There is no difference between a 19 1/2 fish or 19 3/4 fish, short fish is short fish, the ticket was written. In addition the FWC officer testified at trial, he does not measure fish in accordance with federal law. There was a document prepared by the FWC expert that said yes, fish shrink and if these had been measured correctly they averaged over 20 inches (offshore frozen). This was a smoke and mirror prosecution.

  2. I love this, Dave! Many congrats to you! We've come a long way from studying for the bar together! :)

  3. This outbreak illustrates the absurdity of the extreme positions taken by today's liberalism, specifically individualism and the modern cult of endless personal "freedom." Ebola reminds us that at some point the person's own "freedom" to do this and that comes into contact with the needs of the common good and "freedom" must be curtailed. This is not rocket science, except, today there is nonstop propaganda elevating individual preferences over the common good, so some pundits have a hard time fathoming the obvious necessity of quarantine in some situations....or even NATIONAL BORDERS...propagandists have also amazingly used this as another chance to accuse Western nations of "racism" which is preposterous and offensive. So one the one hand the idolatry of individualism has to stop and on the other hand facts people don't like that intersect with race-- remain facts nonetheless. People who respond to facts over propaganda do better in the long run. We call it Truth. Sometimes it seems hard to find.

  4. It would be hard not to feel the Kramers' anguish. But Catholic Charities, by definition, performed due diligence and held to the statutory standard of care. No good can come from punishing them for doing their duty. Should Indiana wish to change its laws regarding adoption agreements and or putative fathers, the place for that is the legislature and can only apply to future cases. We do not apply new laws to past actions, as the Kramers seem intent on doing, to no helpful end.

  5. I am saddened to hear about the loss of Zeff Weiss. He was an outstanding member of the Indianapolis legal community. My thoughts are with his family.

ADVERTISEMENT