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Thursday, December 1, 2022 - Lawsuit alleges Stifel 'pocketed enormous fees' from housing bonds
Stifel Financial Corp. (SFC)
Source -
Where - United States of America
Cost - 1,400,000 USD
Business line - Corporate Finance
Copyright © Business Journal ( 2022

Bondholders of several failed Chicago housing projects are seeking class-action certification in their lawsuit against Stifel Financial Corp., alleging that the St. Louis-based investment bank omitted and misrepresented critical information in the sale of $160 million in bonds.

California residents Keith Krupka and Joseph J. Lee, who bought bonds with a total par value of $1.4 million, alleged that Stifel “facilitated the financing in what turned out to be one of the largest public financing scandals” in the United States.

“When the dust settled, the Projects were all in default of their obligations and in various states of disrepair. While bondholders lost well over $125 million, Stifel pocketed enormous fees and commissions,” according to the lawsuit filed last month in St. Louis County Circuit Court. The lawsuit does not cite the amount that Stifel received in fees and commissions.

Reached for comment, a Stifel spokesperson said in an email: “We believe this lawsuit is frivolous and without merit.”

The lawsuit states that the Illinois Finance Authority issued bonds for five low-income housing developments in Chicago on behalf of a nonprofit group, the Ohio-based Better Housing Foundation.

From 2016 through 2018, Stifel handled the underwriting, issuance and sale of the bonds, delivering the proceeds to the finance authority, which then loaned the money to the Better Housing Foundation.

In the official statements used to market the bonds, Stifel represented that the borrower would “deliver a certificate to the effect that no litigation and no proceedings are pending or, to its knowledge, threatened against the borrower...”

But the lawsuit states that Stifel failed to alert investors that the city of Chicago from October 2017 through March 2018 had filed 27 notices of ordinance violations by the Better Housing Foundation regarding the management and conditions at several of the housing developments.

“None of these facts were disclosed to investors by Stifel, yet upon information and belief, Stifel did know about the Projects prior ordinance violations and therefore, Stifel knew that (Better Housing Foundation) had operational issues when relaying that the success of the Project was dependent upon (Better Housing Foundation),” the lawsuit states.

The Better Housing Foundation defaulted on payments of its senior debt in 2019 and the city of Chicago successfully petitioned for the appointment of a receiver. The Chicago Tribune reported in 2020 that the nonprofit group paid millions in fees to those involved in state-aided deals while some of its South Side apartment buildings deteriorated.

Krupka bought bonds with a par value of $750,000 and Lee purchased bonds for two projects with par values totaling $670,000.

“Now the Bonds are worth far less than they should have been worth, had the facts and representations made to investors been accurate and complete,” the lawsuit states.

It’s unclear how many investors would be included if the lawsuit is certified as a class action. Joseph Kronawitter, an attorney with Horn Aylward & Bandy in Kansas City who is representing the two plaintiffs in the petition for a class action, didn’t immediately respond to a request for comment.