Broker-Dealer Litigation - Greenberg Traurig LLP

SEC v. Stifel, Nicolaus & Co., Inc. and David Noack, 2011 SEC LEXIS 2767, SEC Litigation
Release No. 22064 (August 10, 2011)
On August 10, 2011, the SEC filed a complaint in the U.S. District Court for the Eastern
District of Wisconsin against Stifel, Nicolaus & Co, Inc. (“Stifel”), a registered broker-dealer
and investment advisor, and former Senior Vice President David Noack alleging the fraudulent
sale of unsuitable financial instruments to five Wisconsin school districts. According to the
Commission, Stifel and Noack encouraged the risk-averse school districts to invest in notes
linked to the performance of synthetic collateralized debt obligations (“CDOs”) as a means to
fund retiree benefits owed to current and former employees. However, Stifel and Noack
misrepresented the risks associates with the investment and failed to disclose material facts.
Specifically, Stifel and Noack made “sweeping assurances” to the school districts,
misrepresented that 30 of the 105 companies in the portfolio would have to default and that 100
of the top 800 companies in the world would have to fail before the school districts would suffer
a loss of their principle, and failed to disclose poor portfolio performance, credit downgrades, the
concerns by CDO providers about the investments, such as selling this type of product to this
investor, and the providers’ ultimate refusal to participate. According to the Commission, the
school districts did not have prior experience investing in CDOs and lacked the sophistication to
independently evaluate the investment. Over a few years, the school districts’ $200 million
investment became worthless.
The SEC has charged Stifel and Noack with violating Section 17(a) of the Securities Act
of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and
Stifel with violating and Noack with aiding and abetting violations of Section 15(c)(1)(A) of the
Securities Exchange Act of 1934. The investigation is ongoing.
SEC v. Finger and Black Diamond Securities LLC, 2011 SEC LEXIS 3132, SEC Litigation
Release No. 22087 (September 8, 2011)
The SEC is alleging that Richard A. Finger Jr. and his brokerage firm Black Diamond
Securities LLC (“Black Diamond”) violated Sections 10(b) and 15(c)(1)(A) of the Securities
Exchange Act of 1934 (“Exchange Act”) by cheating customers out of millions of dollars
through unauthorized, high-risk options trading and excessive commissions. Finger, who was
the sole owner and majority shareholder of Black Diamond, obtained most of his clientele from
family and friends who he served in his previous positions at other financial institutions.
The complaint, filed on September 8, 2011, alleges that Finger falsified documents and
customer receipts indicating higher account balances and lower commission percentages than
were actually in the account. In one instance, characteristic of all Black Diamond accounts,
Finger reported nearly $800,000 on his customer statement when the account actually only had
$62.00. Additionally, Finger reportedly told his clients that he was taking little or no
commission on certain transactions, while in reality he was purportedly taking hundreds of
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