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Ameriprise sets aside $40M for private placement claims

Amount equals about 10% of total client losses on Reg D notes later deemed fraudulent by the SEC

Ameriprise Financial Inc. said late today it was setting aside $40 million in legal reserves for class actions and legal claims arising from the sale of allegedly bogus private placements by its independent broker-dealer subsidiary, Securities America Inc.
The reserves relate to sales of Medical Capital Holdings Inc. and Provident Royalties LLC.
“With respect to potential resolution of such actions and claims subsequent to year-end, the company has recognized an additional provision of approximately $40 million in legal reserves,” Ameriprise said in its annual report.
The amount is about 10% of the total that clients have lost in the two series of investments, Ameriprise said. “Approximately $400 million of Medical Capital and Provident Shale investments made by (Securities America) clients are outstanding and currently in default,” the company said.
Just this month, a federal judge in Dallas put a halt to all arbitration claims relating to Securities America clients buying Medical Capital and Provident investments.
That move was made so a preliminary class action settlement could be heard in the U.S. District Court for the Northern District of Texas. As part of Judge W. Royal Furgeson Jr.’s restraining order, Securities America agreed to contribute about $21 million to the pot of money available to investors.
A preliminary approval hearing for that settlement has been set for March 18.
A spokesman for Ameriprise did not immediately return a call seeking comment on this story.
But plaintiffs’ attorneys who represent individual investors who purchased the private placements say they will strongly oppose any class action settlement that prevents their clients from suing Securities America in private arbitration through the Financial Industry Regulatory Authority Inc.
In 2009, the Securities and Exchange Commission charged both Medical Capital and Provident Royalties with fraud. Dozens of independent broker-dealers sold the high-risk products, with some closing down because of the costs arising from crippling litigation.