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INsider: Report that Ameriprise ‘may' let SA go under could be off the mark

Mar 24, 2011 @ 2:42 pm

By Bruce Kelly

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((Zach Korb))

In a story published this afternoon, Reuters reported that Ameriprise Financial “may” let its independent broker-dealer Securities America go out of business due to hundreds of millions of liabilities to clients who bought $400 million of allegedly fraudulent private placements.

Reuters based its story on an unattributed source, who said that "Ameriprise is willing to walk away (from Securities America). It is a public company with shareholders, and Ameriprise has to look out for their interests."

It is unclear if the source has inside knowledge of the mediation efforts currently underway between Securities America and investors who are suing the firm.

On Thursday morning and afternoon, a retired federal judge led the meeting between lawyers for investors who bought the failed private placements and the two brokerage companies involved, Securities America and Ameriprise, which owns Securities America.

The notion that Ameriprise would let Securities America go under probably wouldn't hurt the besieged B-D at the negotiating table. Certainly, such a report would undoubtedly put a scare into attorneys who want to get 100 cents on the dollar back for their clients.

As of 2:00 E.S.T, sources involved in the mediation tell me that the plaintiffs lawyers are about to make their first offer. Ameriprise has not had time to come back with a hard number in response.

But keep this in mind: Earlier this week, I had a conversation with a high ranking executive in the brokerage industry who said he would be shocked if Ameriprise would let Securities America collapse. Indeed, the executive said he had had a discussion with a source who is very familiar with Securities America's situation – and he claimed that the source said Ameriprise would not let its indie B-D go down the tubes. Such a fiasco would be a black eye for Ameriprise, a publicly traded company which pitches itself to investors as a firm of financial planners.

What's more, broker-dealers just don't shut down overnight. It takes time, sometimes weeks or months, to close or unwind a firm. And Finra, the industry's leading regulator, also takes a very dim view of firm's closing swiftly to avoid the cost of litigation. At the very least, Finra would probably take a hard look at any maneuver that left clients of Securities America out in the cold. And that is an embarrasment Ameriprise most likely would want to avoid.

Who knows how this story will play out. Securities America is most assuredly in a fix. But at this point, reports of Securities America's demise — if not greatly exaggerated —seem a bit premature.


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