As a result of crushing legal expenses, Securities America Inc. posted a $115 million loss in the first quarter, according to results announced yesterday by its parent company,
Ameriprise Financial Inc.
The announcement comes as Ameriprise begins to shop the firm of 1,800 reps and advisers.
Securities America posted $237 million in expenses for the quarter, a 114% increase over the $111 million in expenses it recorded a year earlier. The majority of the increase stemmed from legal expenses in the firm's struggle to resolve hundreds of lawsuits and arbitration claims tied to its sale of private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC, both of which the Securities and Exchange Commission charged in 2009 with fraud.
Clients had about $400 million in losses from those series of investments. This month, Ameriprise offered a settlement of nearly $160 million to those Securities America clients.
The sale of Securities America, provided it can find a buyer, will not have an effect on the settlement, Ameriprise has indicated.
Management at Securities America is upbeat despite the loss.
“Securities America is financially strong and stable,” chief executive Jim Nagengast wrote in a note yesterday to the firm's advisers. “As the Medical Capital and Provident litigation is put behind us, we expect our excess net capital will remain stable or grow.”
Indeed, results were not all bad for Securities America. In the first quarter, the firm reported $122 million in revenue, a 7% increase over the same period of last year. The firm's assets under management in its fee-based programs reached a high of $15.8 billion.
Mr. Nagengast remains positive about the firm's prospects despite its recent troubles.
“The sale gives us the opportunity to find a company where Securities America's independent, entrepreneurial business culture can grow within the independent broker-dealer space,” he wrote in the e-mail. “With our cutting-edge business growth programs, industry-leading income distribution platform and robust technology, we offer a great deal of value.”
“Ameriprise is committed to finding an appropriate buyer that will assume ownership with the least disruption to Securities America advisers,” he wrote.
