Ameriprise Financial Inc. has reached a $27 million settlement with investors who bought private placements that have gone bust from reps at its independent broker-dealer subsidiary, Securities America Inc., according to an attorney with knowledge of the matter.
Ameriprise Financial Inc. has reached a $27 million settlement with investors who bought private placements that have gone bust from reps at its independent broker-dealer subsidiary, Securities America Inc., according to an attorney with knowledge of the matter.
The proposed settlement, which must be approved by a federal judge later this month to become final, comes two weeks after Securities America reached a $21 million potential settlement with the class action plaintiffs who sued Securities America and Ameriprise in 2009.
In one allegation from the suit, C. Richard Toomey, et al. v. Securities America Inc., et al, plaintiffs claimed that Securities America handed private placement memorandum to clients that contained untrue statements about the deals and omitted other material information about the deals.
It is part of a labyrinth of litigation before federal judge W. Royal Furgeson Jr. in Dallas, stemming from dozens of independent broker-dealers, including Securities America, selling two series of private placement deals that have left investors with tens of millions of dollars of losses.
The Securities and Exchange Commission charged both Medical Capital and Provident Royalties with fraud in 2009.
With Securities America looking to squeeze another $4 million from its insurance carrier, the money for investors would be about $52 million, said Dan Girard, lead plaintiff's attorney for the investors in the class action lawsuit. He said that works out to be about 15 cents on the dollar per investor.
“The proposed class action settlement is substantially greater that the net worth” of Securities America, he said, pointing to the fact that a substantial portion, $11 million, of Securities America's settlement is to come from the firm's future earnings.
Ameriprise's liability stems from the fact that it was a “control person” with respect to Securities America, he said.
He added that the Ameriprise and Securities America settlements were independent of each other.
Chris Reese, a spokesman for Ameriprise, said on Wednesday evening he could not confirm or deny the settlement.
In its annual report earlier this week, Ameriprise said Securities America clients were facing almost $400 million in losses from the Medical Capital and Provident investments, and the firm also said it had set aside about $40 million in legal reserves for the claims.
A key part of the potential Securities America settlement is the fact that it requires investors who have sued the firm through arbitration under the Financial Industry Regulatory Authority Inc. will have those claims halted. Investors would become part of the class. This has infuriated some investors, along with their attorneys, who want their claims to go forward through arbitration with hopes of winning 100 cents on the dollar, plus the potential for damages.
Indeed, the firm was dealt a costly legal blow on New Year's Eve when a Finra arbitration panel awarded almost $1.2 million in damages and legal fees to a client who sued the firm and a broker over the sale of Medical Capital private placements. The award included $250,000 in punitive damages.
“A class action settlement treats everyone fairly,” Mr. Girard said. He added that some plaintiff's attorneys representing clients in Finra arbitration have a “conflict of interest” over the matter because they have clients at the front and the back of the long line of litigation against Securities America. Those at the back of the line run the risk of getting nothing if the firm runs out of money, he said.
And that threat is substantial. Small to mid-sized independent broker-dealers that sold high risk private placements have gone out of business due to lawsuits and legal costs over the past two years. None have been as substantial as Securities America, which has about 1,800 reps and advisers who generated about $500 million in fees and commissions last year.
Securities America is also being sued by securities regulators from Massachusetts and Montana but the status of those suits is not clear in the light of the proposed settlements.
Mr. Furgeson will hold a hearing in federal court in Dallas on the proposed settlements on March 18. Lawyers for the plaintiffs in arbitration plan to argue vigorously against any settlement that would freeze investors' arbitration claims against Securities America.
