Report: Ameriprise Might Let Brokerage Unit Fail

Investors claim to have lost $400 million on securities bought through Ameriprise subsidiary Securities America; an unnamed "source familiar with Ameriprise's thinking" told Reuters that the company might let the unit go under instead of bailing it out of millions in legal claims.

Ameriprise Financial, Inc., is prepared to let an independent brokerage unit fail rather than paying millions in legal claims, according to a Reuters report.

Investors claim to have lost $400 million on securities bought through the brokerage, La Vista, Nebraska-based Securities America-a subsidiary of Minneapolis-based Ameriprise. Lawyers representing those investors last week helped convince a federal judge in Dallas to reject a $21 million class-action settlement with the unit.

According to Reuters, an unnamed “source familiar with Ameriprise's thinking” said that Ameriprise wants Securities America to survive but also needs to protect shareholders.

“Ameriprise is willing to walk away,” the source told Reuters. “It is a public company with shareholders, and Ameriprise has to look out for their interests.”

Securities America is a broker dealer that provides technology and other support for 1,800 self-employed brokers who don't use the Ameriprise name.

Ameriprise and Securities America began mediation before a retired federal judge on Thursday in Chicago.

According to Reuters, Securities America claims to not have enough money to pay all of the potential damages it owes, but plaintiffs' lawyers are betting that Ameriprise will want to keep the firm afloat.

It was a long road that led Securities America to its current situation. In 2009, the U.S. Securities and Exchange Commission accused two companies that issued private placements-Provident Royalties, LLC and Medical Capital Holdings, Inc.-of defrauding investors after their securities plunged in value. A private placement is a sale of securities to a small number of select investors as a way of raising capital. Many brokerages distributed the securities, some of which have been forced to close their doors, and Securities America was the largest among them.

On December 31, 2010, Securities America was ordered to pay $1.2 million in compensatory and punitive damages, along with fees, related to its sale of the private placements. And earlier this year, one class of investors reached a $21 million settlement with Securities America and a $28 million agreement with Ameriprise.

According to Reuters, many plaintiffs' lawyers thought they could recover more in arbitration and are counting on Ameriprise to bail out Securities America. The attorneys also reportedly believe that Ameriprise won't let a subsidiary go bankrupt because of the damage it may cause to the company's reputation.

An Ameriprise spokeswoman wasn't immediately available by phone Friday afternoon, but the company issued the following statement to investors via its Web site:

“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 for all constituents.

“As we work to help the parties come to a reasonable resolution, we will balance the best interests of all Ameriprise constituents.

“Securities America was one of many firms that distributed Medical Capital and Provident shale [gas ventures] securities. The securities, which were registered with the Securities and Exchange Commission, were a Regulation D offering, which is a widely distributed asset class.”

Ameriprise is among Minnesota's 10-largest public companies based on revenue, which totaled approximately $10 billion in 2010.