Securities America allegedly hawked securities without fully informing investors of the risks.
By CHRIS SERRES, Star Tribune
A brokerage firm owned by Ameriprise Financial Inc. has reached a preliminary agreement to pay more than $50 million to settle claims that it misled investors about risky investments in private companies, sources familiar with the negotiations said.
The agreement would settle a wave of arbitration claims by investors against Securities America Inc., a Nebraska-based subsidiary of Ameriprise, for allegedly selling nearly $700 million in promissory notes without fully disclosing their risks. Some people lost their life’s savings on the securities, according to regulatory filings.
Securities America, which has 1,863 brokers nationwide, has been trying to settle multiple arbitration claims and class-action lawsuits that have dragged on for more than a year. It is unclear how much the settlement ultimately will cost the firm and its investment-company parent, Ameriprise, which is based in Minneapolis.
Officials at Securities America declined to comment. An Ameriprise spokesman could not be reached.
In early 2010, the Massachusetts secretary of state alleged that Securities America sold promissory notes issued by corporations owned by Medical Capital Holdings Inc., which used the proceeds to buy batches of medical receivables. Between 2003 and 2009, Medical Capital issued more than $1.7 billion in notes, and Securities America placed 37 percent of the total, or $697 million, according to an administrative complaint filed by the Massachusetts authorities.
Securities America representatives would hold dinner seminars for as many as 100 potential investors at a time, without meeting a legal responsibility to ask if they were sophisticated investors, the Massachusetts complaint says. The firm also described the notes as “fully secured” in fliers and letters sent to investors, the complaint says.
In connection with these sales, Securities America received more than $26 million in compensation. The firm’s top executives also enjoyed a number of vacation trips, such as golfing at Pebble Beach, Calif., and stays in Las Vegas resorts, that were paid by Medical Capital, according to the Massachusetts complaint.
From 2003 to 2008, Securities America used an outside “due diligence analyst” to review Medical Capital offerings. This analyst raised concerns about Medical Capital’s lack of audited financials and recommended that certain material risks be disclosed to investors. However, Securities America ignored the analyst’s recommendations, the Massachusetts complaint alleges.
Medical Capital ultimately defaulted on nearly $1.1 billion in obligations, including $358 million in notes sold by Securities America, according to the Massachusetts complaint. Medical Capital and two of its executives have been charged with fraud by the Securities and Exchange Commission.
“There were plenty of red flags, but [Securities America] really did nothing to follow up and investigate them,” said Steven Toskes, a securities attorney in Boca Raton, Fla., who represents investors who lost money on the notes.
Ameriprise said recently that it has set aside $40 million to cover legal costs. A number of attorneys said they plan to pursue claims against Ameriprise, regardless of a settlement.
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