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Whitefish Bay — After an eight-year legal battle, Whitefish Bay School District has finally recovered the $1.2 million it lost as part of a failed investment in 2006.

Whitefish Bay was one of five Wisconsin school districts that invested $200 million in synthetic collateralized debt obligations, which are now worthless. The CDOs were manufactured by the Royal Bank of Canada, and the Wisconsin school districts purchased them on the advice of David Noack, a broker then employed by Stifel, Nicolaus & Co.

In 2008, the districts filed suit against RBC and Stifel, Nicolaus & Co. alleging fraud, misrepresentation, and multiple securities law violations. In 2010, at the urging of the school districts and their attorneys, the U.S. Securities and Exchange Commission began investigating RBC and Stifel concerning these CDO investments.

RBC settled with the SEC in 2011, agreeing to pay $30.4 million to the five Wisconsin school districts. Whitefish Bay received $632,000 as part of that settlement, which is roughly half the district's initial investment.

Six months later, the districts and trusts resolved their direct claims against Stifel. In that settlement, Stifel paid $13 million to the school districts and provided a standby letter of credit for an additional $9.5 million, to be paid when its own regulatory case with the SEC ended. The SEC announced last week that it has resolved its regulatory case against Stifel Nicolaus & Company.

With the closure of the SEC case, Whitefish Bay received $893,000. When including the $632,000 settlement from 2011, the district received a total of $1.5 million. The extra $300,000 was enough to cover all of the district’s legal fees. The $832,000 check that arrived in the district office last week will be put back into the post-employment benefits trust, which is now fully funded.

“It was a long time coming, but this is a terrific result for us," said Shawn Yde, the director of business services at Whitefish Bay School District. "We stood up for ourselves and recovered everything we lost. I’m grateful for the unwavering support of our board, administration, and the Whitefish Bay community. Without their commitment, and the excellent work of our legal team, an outcome like this wouldn’t have been possible.”

Originally, the five school districts invested $35 million in cash and their trusts borrowed $165 million — for a total of $200 million — to purchase the CDOs in 2006. Whitefish Bay, specifically, borrowed $8.8 million. The Stifel settlement in 2012 relieved the districts and trusts of any obligation to repay the $154 million in notes borrowed from Depfa Bank in Ireland.

The cash recovered by the school districts from settlements is $63.9 million, which is nearly twice the amount of the districts’ initial cash investment. Including the debt forgiveness of $154 million, the total litigation recovery is $217.9 million, or 109 percent of the amount originally invested. This is the second largest civil settlement in state history, according to Kravit, Hovel & Krawczyk, the law firm representing the districts.

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