Brokerage firms normally want to stay out of court and force their clients to sue in arbitration; yet, Securities America, a subsidiary of Ameriprise Financial, Inc., went to court in an effort to cram down a class action settlement on its clients who had brought individual FINRA arbitration claims against it.
Why? Money (of course).
Securities America sold hundreds of millions of dollars of Medical Capital, Inc. promissory notes and Provident Royalties preferred stock and limited partnership interests to its clients. These were sold as private placements. Securities America clients brought claims against the firm alleging it had failed to adequately investigate these products, that the investments were unsuitable, and that the firm did not disclose the products’ risks, which were substantial.
State and Federal regulatory authorities had previously taken notice of these investments. In 2009, the Securities and Exchange Commission (“SEC”) sued Provident Royalties alleging that it had sold preferred stock through a series of fraudulent private placement offerings. According to the action, Provident promised investors high returns and misrepresented how investor funds would be used. Subsequently, in 2010, FINRA’s Chief of Enforcement described the investment as a classic Ponzi scheme.
In 2010, the Enforcement Section of the Massachusetts Securities Division brought an administrative action against Securities America relating to its sale of Medical Capital Notes to investors. This action alleged that Medical Capital notes were recommended by Securities America to its clients as being “Fully Secured” and that despite knowing of material risks associated with the investments, it failed to provide this information to its clients or its brokers.
In an effort to reduce its liability exposure, Securities America asked United States District Judge Royal Furgeson to preliminarily approve a class action settlement which would return only pennies on the dollar to investors. As part of this request, Securities America also requested that all individual FINRA arbitration cases be halted and made a part of the class action settlement.
In a win for investors, last Friday, March 18, Judge Furgeson declined to approve of the class action settlement and ruled that individual FINRA arbitrations could proceed forward.
If you believe you have suffered losses because of this product, please contact Smiley Bishop & Porter LLP to discuss your rights at 770-829-3850 or toll-free (800) 697-4514. Smiley Bishop & Porter LLP represents individual and institutional investors in securities arbitration and business litigation. The firm focuses on cases involving defrauded investors, suitability claims, and mismarketeted investment products. Smiley Bishop & Porter LLP is available for a free initial consultation. Please visit us at www.sbpllplaw.com/ to obtain additional information.