Pushed to the brink of failure from crushing legal costs, Securities America Inc. and attorneys for investors who bought $400 million in private placements that went sour have reached an agreement that likely ensures the brokerage's survival.
According to two sources with knowledge of the agreement, the B-D and the investors' attorneys came to an understanding today and the firm informed its 1,800 brokers this afternoon. Mediation between the two sides began last Thursday.
The deal, however, is not set in stone, as investors represented by plaintiffs' attorneys would have to agree to the far-reaching settlement.
Sources did not know the dollar amount of the settlement or how much
Ameriprise Financial Inc., parent company to Securities America, might contribute.
A Securities America spokeswoman, Janine Wertheim, was not available to comment on Monday evening.
A federal judge in Dallas this month shot down a proposed $21 million settlement between Securities America and plaintiffs, drawing attention to the relationship between Ameriprise and the independent broker-dealer it bought more than a decade ago. Ameriprise said in its annual report it had set aside $40 million in legal reserves due to legal costs stemming from Securities America's sale of the Reg D offerings that defaulted.
Plaintiffs attorneys, however, have said it would take 50 cents on the dollar – or $200 million – to reach an appropriate settlement.
For almost two years, Securities America has been dogged by legal problems stemming from its brokers selling private placements issued by Medical Capital Holdings and Provident Royalties LLC. From 2003 to 2008 the firm's brokers sold about $700 million of Medical Capital notes, and about half of those are under water.
The Securities and Exchange Commission charged the two sponsors with fraud in July 2009.
