Five Wisconsin school districts and Stifel Financial Corp. announced a $22.5 million settlement with Stifel Financial Corp. on March 19 over a 2008 lawsuit in which the school districts purchased $200 million worth of risky financial instruments that soon became devalued in the economic collapse.

The districts — Waukesha, West Allis-West Milwaukee, Whitefish Bay, Kenosha and Kimberly — received $13 million and a standby letter of credit of $9.5 million to be paid once Stifel resolves a case with the Securities and Exchange Commission. The SEC had charged Stifel in August with misleading the school districts.

In addition to the $22.5 million paid to the districts, Stifel agreed to waive $154 million in debt the districts owed.

Ed Fallone, associate professor of law at Marquette, said the districts had a very good case to make.

“When (the school districts) are investing money, they do have a responsibility to be a prudent investor and not take unnecessary risks,” Fallone said. “But their argument is that these investments were marked as safe.”

C.J. Krawczyk, an attorney representing the districts, explained how hard the process has been on them.

“All these districts have … credit ratings rated by Moody’s, and all the districts were downgraded,” Krawczyk said. “They’ve been engaged in pretty hard-knuckled, distracting litigation for over four years now. Fortunately, there were no jobs cut.”

The 2008 lawsuit also claimed that the Royal Bank of Canada, which created the investments, misled the districts during the purchase of the securities. Stifel has now said it will join forces with the districts in pursuing these claims, which RBC denies.

“Stifel’s claims against us are preposterous,” said Elisa Barsotti, senior manager of corporate communications for RBC, in an emailed statement. “We vehemently deny their allegations.”

RBC places the blame of the investment on Stifel alone.

“Stifel unilaterally designed this investment, represented to us in writing that this investment was suitable in light of the districts’ objectives, and is responsible for misrepresenting and selling the product, whose risk it compared to treasury notes, to the school districts,” Barsotti said.

Krawczyk, though, believes there is blame to be placed on both Stifel and RBC.

“RBC is saying that Stifel omitted the true risks when they marketed the product,” Krawczyk said. “Our position is there is enough blame to go around on both sides.”

Fallone agreed, but placed a little more responsibility on Stifel.

“(Stifel and RBC) are both responsible for the product that is being sold,” Fallone said. “Stifel is supposed to know what it’s selling and if they don’t, that’s a problem.”

Krawcyzk said the school districts were in no position to know the danger of the investments.

“If the professionals that do nothing but CDO (collateralized debt obligation) management can be defrauded, I would say that the districts are not equipped (to see the danger),” Krawcyzk said.

RBC already paid the districts $30.4 milion in September, after the SEC accused the firm of misconduct in its role in the sale. The SEC’s case with Stifel is still pending, and a trial date has not yet been set.