Court reverses FSA ruling

An Atlanta federal appeals court yesterday reversed a ruling, thereby affirming the dismissal of securities fraud charges against underwriter Stephens Inc. The court turned down an appeal by Financial Security Assurance Inc., a New York-based insurer, against Stephens. In 2000, FSA filed suit against the underwriter in a district court, alleging that Little Rock, Ark.-based Stephens Inc. made misrepresentations related to $69.6 million in defaulted bonds that were issued in 1998 to cover the completion of a waste-processing facility in Cordele, Ga., according to the Bond Buyer. Specifically, FSA said that Stephens misled it regarding the facility’s operations and its ability to create sufficient revenue to cover the bonds, the Bond Buyer said. These charges were dismissed twice, but the FSA appealed in 2004. Two years later, a federal appeals court said that FSA could file charges against Stephens, but it blasted FSA’s inability to conduct due diligence on the waste facility and its funding. FSA again appealed this decision and lost. The bond industry has been eyeing the case through its duration: Trade groups, such as the Bond Market Association, SIFMA’s predecessor, rallied to the side of Stephens Inc., filing amicus curiae briefs with the appeals court and arguing that bond insurers must conduct their own due diligence.