A Missouri-based financial services firm will repurchase all of its retail clients’ auction rate securities, including $41 million in payouts this year, as part of a settlement agreement.

The North American Securities Administrators Association (NASAA) announced a deal with St. Louis, Mo.-based Stifel, Nicolaus & Co. Inc. to aid clients who had their funds frozen in the auction rate securities market. The settlement follows an investigation into possible violations by Stifel and other firms by state securities regulators to address problems in connection with the offer and sale of auction rate securities.

Under the settlement, Stifel will repurchase more than $100 million in auction rate securities no later than December 2011, including the $41 million in payouts this year.

Every Stifel customer holding auction rate securities is to receive a partial payout by Jan. 15, with all investors holding $150,000 or less completely repaid by the end of the year. The remaining investors will be repaid in full by the end of 2011.

Stifel originally set a June 30, 2012, deadline to repurchase all auction rate securities early last year, but advanced the date by six months through the settlement with the NASAA.

The financial services firm will also pay a $525,000 fine imposed by NASAA to be shared by officials in Colorado, Indiana and Missouri, who all participated in the settlement. Stifel will also pay $250,000 to Missouri and $25,000 in Indiana to reimburse the costs of investigation, expenses and other payments related to the settlement.

Repurchase a priority

“The number one goal of my office has always been to get Stifel investors their money back as quickly as possible,” Missouri Secretary of State Robin Carnahan said in a statement. “With this settlement, 90% of Missourians and 80% of Stifel customers nationwide will be made whole by the end of 2010, many of them a year and half ahead of Stifel’s original buyback offer.”

Stifel said in a statement that since the “extraordinary collapse” of the auction rate securities market in 2008, the company has been addressing the liquidity needs of its clients. Since that collapse, states securities regulators nationwide have reached settlements with several firms to repurchase more than $61 billion in the securities, according to the NASAA.

“This settlement demonstrates the ongoing value of states working together to benefit investors nationwide,” said NASAA President and Texas Securities Commissioner Denise Voigt Crawford. “State securities regulators will continue to seek much needed relief for investors who have suffered from the collapse of the auction rate securities markets.”

The NASAA settlement also requires Stifel to hire an independent consultant to review the firm’s supervisory and compliance policies and procedures solely for non-conventional investments.

Settlement a ‘solution that works well’

Ronald J. Kruszewski

Stifel’s chairman and CEO, Ronald J. Kruszewski, said that since the market collapse, issuer redemptions and restructurings, as well as the firm’s voluntary repurchase plan have resulted in significant liquidity for many of its clients, reducing retail client holdings by nearly 50%.

“This accelerated and enhanced plan will ultimately provide liquidity to 100% of our [auction rate securities] retail clients, about 1,200 in number, who represent less than one-half of 1% of all Stifel retail accounts,” he said.

Kruszewski said he appreciated the efforts of Carnahan’s office “for their willingness to work with us and create a solution that works well for all involved” and is pleased to resolve all issues with the NASAA.

Roy Gerdel, a Stifel investor from Missouri, said in a statement from Carnahan’s office that it was good to have the issue settled. “Stifel did the right thing by buying these investments back,” said Gerdel. “The secretary of state’s office did the right thing by working with Stifel to accelerate the process.”