Securities America advisers left in limbo

A mediation session to resolve investor claims against Securities America Inc. involving hundreds of millions of dollars failed to yield a settlement last week as the firm's 1,800 representatives and financial advisers continued to speculate about whether the firm will survive. On Friday, the firm sent an e-mail to its 1,800 reps and advisers canceling a conference call scheduled for after the close of the market to update them on negotiations of the mediation and the firm's future. The firm, along with its parent, Ameriprise Financial Inc., is trying to resolve a class action and numerous arbitration claims in connection with the sale of $400 million of allegedly fraudulent private placements. Securities America advisers spent a tense week with the firm facing the potential threat of shutting down due to legal expenses and damages from lawsuits if some sort of wide-ranging settlement isn't reached.

FIRM AT RISK

On March 18, its chief financial officer, Kelly Windorski, testified in federal court in Dallas that the firm could go out of business if a federal judge rejects Securities America's initial proposed $21 million settlement with investors. That evening, Judge W. Royal Furgeson Jr. rejected that proposed settlement and later sent the two sides into mediation. That process started Thursday in Chicago. The mediation is being overseen by retired U.S. District Court Judge James M. Rosenbaum. “We hope to hear more next week, maybe Tuesday,” said one broker, who asked not to be identified. “Negotiations are ongoing,” spokeswoman Janine Wertheim wrote in an e-mail. The multimillion-dollar legal dilemma at Securities America has been unfolding since July 2009, when the Securities and Exchange Commission charged two sponsors of high-risk private placements with fraud. Those sponsors, Medical Capital Holdings Inc. and Provident Royalties LLC, sold about $2.7 billion of investments through dozens of independent broker-dealers, many of which have gone out of business due to crushing legal bills and liabilities. Securities America brokers were by far the biggest vendor of MedCap offerings, selling $700 million of the products. About half are in default. E-mail Bruce Kelly at [email protected].