Judge approves settlement; brokers with arbitration claims now can put matter behind them
A federal judge's approval last week of a class action settlement is good news for representatives from Securities America Inc. whose disgruntled clients named them in arbitration complaints over sales of private placements that have gone bust.
Last Thursday, U.S. District Court Judge W. Royal Furgeson Jr. in Dallas signed an order to approve an $80 million settlement between Securities America and class action investors suing the firm over two series of private placements, Medical Capital Holdings Inc. and Provident Royalties LLC. In April, a separate $70 million settlement was reached with investors who had filed individual arbitration claims against some brokers.
With the settlement approved, reps and financial advisers at Securities America whose employment records were tarred with open or pending arbitration claims due to MedCap and Provident sales can now see closure.
“We are very pleased to put this matter behind us,” said Janine Wertheim, a spokeswoman for the firm. “To the extent an individual arbitration claim required disclosure on a representative's U4 when the arbitration was filed, the settlement of each arbitration will be treated like any other settlement and will likewise be disclosed as being resolved by the firm for a given amount with no contribution from the representative.”
A form U4 is the registration statement used to file information about the broker with the Financial Industry Regulatory Authority Inc.
Firms are less likely to recruit a broker if he or she has open or pending arbitration claims, industry observers said.
The settlement of an arbitration claim “means the lawsuit can't come back and bite a new recruiting broker-dealer,” said Larry Papike, president of Cross-Search, a recruiting firm. “The status of pending arbitration was a big problem for brokers.”
Securities America brokers from 2003 to 2008 sold about $700 million of MedCap notes. Although other broker-dealers sold the notes, Securities America was by far the biggest distributor of the private placements.
The Securities and Exchange Commission in 2009 alleged that both Medical Capital and Provident Royalties had committed fraud.
Mr. Furgeson also approved more than $18 million in for fees for the class action lawyers, which will be deducted from the $80 million settlement.
