Class-action litigants, B-D finally sign off on deal over soured Reg D offerings; agreement to be filed with judge 'within the week'
Securities America Inc. is a step closer to settling the ugly dispute between itself and hundreds of clients who bought $400 million of private investments that have gone bust.
Sources with knowledge of the confidential settlement, which includes Ameriprise Financial Inc., the parent company of the beleaguered broker-dealer, have said investors would receive between 45 cents and 48 cents on the dollar. That puts the settlement between $180 million and $192 million.
That's almost four times the original offer of $48 million Securities America and Ameriprise put on the table last month. In March, a federal judge in Dallas rejected a class action settlement of $21 million — Securities America's portion — that would have frozen all individual arbitration claims against the B-D.
The firm informed the brokers of the expected settlement in an e-mail on Tuesday.
“We are pleased to tell you that we have continued to make very good progress toward finalizing a settlement of the Medical Capital and Provident Shale matters,” wrote Janine Wertheim, a Securities America official. “We expect to file a settlement agreement for the class actions with the court within the week, and we are receiving good support of settlement terms from clients who have filed arbitrations. As always, we will keep you apprised of developments.”
From 2003 to 2009, about 400 of Securities America's 1,800 advisers sold private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC. Dozens of independent broker-dealers sold those failed investment instruments, which the Securities and Exchange Commission has since claimed were fraudulent.
Some investors are expected to take a pass on the settlement offer. It is not presently known, though, how many will pursue suing Securities America in arbitration overseen by the Financial Regulatory Authority Inc.
Ameriprise said in its annual report it was taking a $40 million reserve for legal action stemming from Securities America.
Meanwhile, Securities America is desperately trying to hang onto its reps. Many have already contacted competing broker-dealers, fearing the firm might be shut down due to the lawsuits. And in fact, a number of independent broker-dealers that sold Medical Capital notes and Provident shares have closed down, unable to bear the burden of lawyers fees and fighting investors who wanted their money back.
In her note to reps, Ms. Wertheim said the firm was having success recruiting brokers, despite the legal turmoil.
“On another positive note, we continue to see strong business activity and wanted to re-emphasize that year-to-date we have increased the number of advisers affiliated with Securities America for a net gain of 24 advisers,” she wrote. “So many of you have told us that the 4th quarter of 2010 and the 1st quarter of 2011 have been the best in your careers! We congratulate you on your success!”
