Peoples State Bank Of Ellettsville Duped by Stifel Nicolaus

The Peoples State Bank in the tiny town of Ellettsville, Indiana claims it was duped by Stifel Nicolaus when it invested more than $13 million in auction rate securities (ARS), according to a news article in the Indianapolis Business Journal. The Stifel Nicolaus broker, Michael Sullivan, convinced the bank to invest $7.5 million on a security that was backed by federal student loans. During the following couple of months, the bank poured another $6.15 million into the same auction rate securities (ARS).

According to the article, the lawsuit stated that the bank officers never reviewed the prospectus prior to purchasing the securities and did not understand that their investment was subordinate to another investor who purchased securities on the same batch of loans. The attorney for Peoples Bank, Chris Roberg, said in the lawsuit that the bank “had never purchased ARS before and that they reasonably relied on Michael Sullivan’s representation about market liquidity and the safety of the ARS collateral” and he “never mentioned the possibility of a market freeze.” Shortly after their purchases, investors across the country began to exit the market resulting in it freezing in February 2008.

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