The Securities and Exchange Commission hit Stifel Nicolaus & Co. and one of its former executives with fraud charges on Wednesday, alleging that they sold $200 million in investments to five Wisconsin school districts without properly representing their risks.

Stifel Nicolaus, in turn, denounced the charges on Wednesday, alleging that the SEC is unfairly blaming the firm, which served as a placement agent for the transactions. Stifel Nicolaus has filed a cross claim against Royal Bank of Canada, or RBC, which determined that the investments were suitable. An RBC spokesperson said Wednesday that Stifel’s claims are “without merit.”

The new charges are the latest legal troubles to come from investments called collateralized debt obligations, which have also resulted in SEC enforcement actions against Goldman Sachs, ICP Asset Management, JP Morgan and Wachovia Capital Markets.

In its complaint filed in Milwaukee, the SEC alleges that Stifel Nicolaus and Senior Vice President David Noack misrepresented the investment risks and did not disclose material facts related to a program they created to fund retiree benefits for the school districts.

Those school districts include Kenosha Unified School District No. 1, Kimberly Area School District, School District of Waukesha, School District of Whitefish Bay and West Allis-West Milwaukee School District.

The investments included notes that were tied to synthetic collateralized debt obligations and their performance. The $200 million investment included $37.3 million paid by the school districts, with another $162.7 million that they borrowed. The investments’ structure and leverage, the SEC argues, left the school districts at risk for huge losses.

Those risks were evident from the beginning, the SEC argues, while Stifel failed to disclose those risks. That included the early poor performance of the investments, the negative watch that some credit rating agencies put 10% of the portfolio under within about a month of closing and other CDO providers’ declines to participate in the investments while citing their risks.

At the same time, Stifel reassured the school districts, the SEC said, telling them that for the investments to fail it would take “15 Enrons,” referring to the startling collapse and bankruptcy of the large energy corporation in 2001.

In 2010, following years of poor performance, the SEC said, the Wisconsin school districts’ second and third investments failed, and all of the trusts’ assets were taken by the lender. Ultimately, the school districts lost their full investment while the transactions had generated fees for Stifel and Noack, according to the SEC.

“Let this be a teaching moment for sellers of complex financial products,” SEC Division of Enforcement Director Robert Khuzami said in a statement. “The sale of these products to school districts or similar investors must meet well-established standards of suitability and accurate disclosure.”

In a statement released on Wednesday, St. Louis-based Stifel rejected the SEC’s claims and said it plans to vigorously defend its firm against the charges. Stifel also said that some of the firm’s comments that the SEC mentioned were “taken out of context,” while written documents can prove that the school districts were accredited investors and RBC determined they were suitable.

“RBC made millions in undisclosed profits from the investments, many times what it represented to Stifel and the school districts,” Stifel’s statement said. “To date, we have been unable to locate a managed CDO, rated AA- and issued at the same time, that also failed, other than the ones created by RBC.”

In a statement provided by a spokesperson, RBC denied Stifel’s claims against it, while pointing out that Stifel actively created, branded and targeted the school districts with the investments.

“We take exception to Stifel’s attempt to deflect blame without acknowledging their own, central role in the school district’s losses,” RBC’s spokesperson said. “We never misrepresented our estimated profit to Stifel or the school districts. Stifel’s math is flat out wrong. These transactions were not profitable for RBC.”