Report: Ameriprise Unit Close to $50M Settlement
Ameriprise Financial, Inc., subsidiary Securities America has reportedly reached a preliminary agreement to pay more than $50 million to settle claims made by investors who lost money on securities bought through the unit.
According to the Star Tribune, the payment would settle numerous arbitration claims against La Vista, Nebraska-based Securities America, which allegedly sold nearly $700 million in promissory notes without fully disclosing their risks.
Investors claim to have lost $400 million on securities bought through the brokerage. According to the Star Tribune, it’s unclear how much the settlement will ultimately cost Securities America and Minneapolis-based Ameriprise.
An Ameriprise representative, reached Thursday morning by e-mail, declined to comment on the rumored settlement. According to the Star Tribune, the company said recently that it set aside $40 million to cover legal costs-and some attorneys have indicated that they will pursue claims against Ameriprise regardless of a settlement.
Last week, Reuters-citing an unnamed “source familiar with Ameriprise’s thinking”-reported that Ameriprise was prepared to let Securities America fail rather than paying its legal claims.
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 March 24 in Chicago.
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 have been counting on Ameriprise to bail out Securities America. The attorneys also reportedly believe that Ameriprise wouldn’t let a subsidiary go bankrupt because of the damage it may cause to the company’s reputation.
Ameriprise is among Minnesota’s 10-largest public companies based on revenue, which totaled approximately $10 billion in 2010.