West Allis - The West Allis-West Milwaukee School District is in line for $7 million as one of five Wisconsin school districts that finalized agreements in two cases Tuesday.
The districts lost $200 million in investments gone bad in the economic crash. The cases were against the Royal Bank of Canada and the investment firm of the investment firm Stifel Nichlaus & Co.
The districts' $200 million loss was both in cash and in debt they were supposed to pay on the investments. The final recovery from the settlement of the two cases is $217 million, according to a news release from the districts and Kravit, Hovel & Krawczyk, the law firm representing them. The settlements include $63.9 million in cash and $154 million in debt forgiveness.That is the second largest civil settlement in state history, according to the law firm.
Originally, the districts invested $35 million in cash and their trusts borrowed $165 million – for a total of $200 million. With it they bought the investments, known as collateralized debt obligations or CDOs in 2006. The $63.9 million in cash recovered by the school districts from settlements is nearly twice (182 percent) their initial cash investment.
In September 2008, the districts and trusts filed suit against the Royal Bank of Canada and Stifel alleging fraud, misrepresentation, and multiple securities law violations. In 2010, at the urging of the school districts and their counsel, the SEC began investigating RBC and Stifel concerning these CDO investments.
One of the agreements finalized Tuesday settled the case between the districts and the Royal Bank of Canada. At the same time, the U.S. Securities & Exchange Commission (SEC) announced that it had resolved its regulatory case against Stifel Nicolaus & Co. The actions resolved all pending litigation arising from the sale of the CDOs.
Andrew Chromy, director of finance and operations for the West Allis-West Milwaukee School District, is quoted in the news release as saying that the $7 million comes at a crucial time for the district. The current administration inherited deficits from two years of the district having operated in the red. School officials are struggling to get the district on firmer financial footing.
Chromy said, "We are extremely grateful to the lawyers at Kravit, Hovel & Krawczyk, who worked tirelessly for years on behalf of the districts to bring us to this point. We are excited to be able to put this behind us now and to move forward as a