CFO: Securities America on the brink without legal settlement

Securities America Financial Inc. could go out of business if a $21 million lawsuit against the brokerage firm isn't settled at an agreed-on amount. According to Kelly Windorski, the independent broker-dealer's chief financial officer, the firm could go bust if a federal judge does not approve the class action settlement. Mr. Windorski made the statement while testifying in federal court in Dallas this morning. Mr. Windorski told U.S. District Court Judge W. Royal Furgeson Jr. that if the judge does not approve the settlement, it could mean the end of the firm, according to three attorneys who represented individual investors suing Securities America. Mr. Furgeson could make his ruling as early as this evening. Janine Wertheim, a Securities America spokeswoman, did not return calls seeking comment. From 2003 to 2008, Securities America sold $400 million of private placements that are in default. The firm sold nearly $18 million of Provident Royalties, for example, according to court filings. (See chart: The largest broker-dealer sales of Provident Royalties.) Dozens of investors have subsequently sued the firm seeking damages. “‘End of the firm' was the sum and substance of” Mr. Windorski's testimony, said John Chapman, a plaintiff's attorney who represents 70 Securities America investors with claims for losses totaling about $25 million. In his testimony, Mr. Windorski said that, if a settlement was not approved, the firm would go out of business soon, due to defense costs and arbitration awards. Today's hearing in U.S. District Court in Dallas was part of a process of determining whether Securities America clients who lost money on soured Reg D offerings could continue their individual lawsuits against the firm or be required to drop those claims and become part of a class action. That class action also involves Ameriprise Financial, Securities America's parent. Ameriprise said recently it had reached a $28 million preliminary settlement with the class plaintiffs. The firm had 1,923 reps, as of Sept. 30, 2010, and generated over $400 million in annual revenue in 2009. The firm ranks as the 17th largest independent broker-dealer, according to the InvestmentNews B-D Data Center.