Five Wisconsin school districts that borrowed money from a European bank to make bad investments did not pay a $466,000 interest payment owed by their trusts this week, according to a lobbyist representing the bank.
DEPFA Bank seized $5.6 million from the districts' trusts in March and demanded that they immediately repay $165 million that had been lent to them in 2006 to help them purchase the $200 million in investments that now are believed to be virtually worthless. The money in the trusts held by the five districts - Kenosha, Kimberly, Waukesha, West Allis-West Milwaukee and Whitefish Bay - previously had been used to pay quarterly interest payments to the bank.
But, while the bank insisted that the districts should have taken on their trusts' obligation, an attorney for the five districts said district officials were only required to consider whether to honor their agreement with the bank once a year during the budget cycle. All the districts already had commenced deliberations for their 2010-'11 budget cycles without DEPFA raising the interest issue, attorney C.J. Krawczyk said.
'The budget calendars were long known to DEPFA and, if they wanted to tack on still one more quarterly payment, it seems to me that should have been something they should have taken the initiative to do,' he said.
The districts have sued the two investment banks - Stifel, Nicolaus & Co. and Royal Bank of Canada - involved with creating the investments and selling the district trusts. The lawsuit, which is pending in Milwaukee County Circuit Court, alleges that the banks misled district officials into believing that the risky securities were actually safe investments in high-grade corporate bonds.