According to the Investment News, Ameriprise Financial Inc. is taking preliminary steps to help its beleaguered independent broker-dealer subsidiary, Securities America Inc.
On Friday, Securities America’s chief financial officer, Kelly Windorski, testified in a federal court in Dallas that the firm could go bust if a federal judge did not approve a $21 million class action settlement. The judge rejected the settlement later in the day.
The class action is part of a welter of litigation that Securities America is facing after its brokers sold $400 million in private placements from 2003 to 2009 that are now in default. The firm has almost $9 million in excess net capital on hand.
It’s been widely debated in the industry whether Securities America’s corporate parent, Ameriprise, will step in and infuse the firm with cash. At the moment, the brokerage has dwindling resources, is spending $2 million a month on lawyers and could be in danger of violating its net-capital requirement if it suddenly loses a handful of arbitration claims investors have brought against the firm over soured private placements.
Securities America’s statement gave no specifics about how much money Ameriprise would be willing to contribute to the firm, but a Securities America spokeswoman said the parent company has reached out to the beleaguered firm.
“Ameriprise has reached out to us to determine whether it can help the parties find a reasonable resolution for all constituents,” wrote Janine Wertheim, a spokeswoman for the broker-dealer, which has about 1,800 reps and advisers. “We hope to develop a process in the coming days that would facilitate exploration of such a resolution and to have a good sense by the end of the week.”
“While Ameriprise Financial has no obligation to participate in Securities America’s settlement discussions, we have reached out to Securities America to determine if we can help the parties find a reasonable resolution to all constituents,” Ameriprise said in a statement published on its investor relations website.
In its annual report, Ameriprise said it was setting aside $40 million in reserves due to legal actions stemming from brokers at Securities America selling private placements of Medical Capital Holdings Inc. and Provident Royalties LLC.
Sold by dozens of independent broker-dealers in the last decade, the two series of private placements went into default in 2009 and the sponsor companies were later charged with fraud by the SEC. Securities America was by far the largest seller of Medical Capital notes, with brokers selling about $700 million of the product.
Ameriprise previously had reached a proposed $28 million settlement with the class action plaintiffs suing Securities America. That proposed settlement is a separate fund from Securities America’s.
Last month, Federal Judge W. Royal Furgeson Jr. temporarily halted three arbitration claims from investors suing Securities America in order to weigh Securities America’s $21 million proposed settlement. Under the terms of that deal, the arbitration claims would have been rolled into the class action.
Mr. Furgeson’s decision pushes one of two class actions, Billitteri v Securities America, et al., back to where it originated in U.S. District Court in the Central District of California. The case was moved to Dallas and landed before Mr. Furgeson this winter because he is overseeing the class action claim against Securities America and other broker-dealers that sold Provident Royalties investments.
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