by Janet Levaux and featured in AdvisorOne:
Other lawsuits, though, could still emerge, experts say
The Dallas judge in the case of Billitteri vs. Securities America signed an order Thursday giving final approval of an $80 million class-action settlement over the sale of private placements of shares in Provident Royalties and Medical Capital—prompting some experts to conclude that parent company Ameriprise Financial would now have an easier time selling the embattled broker-dealer.“With the microscope on potential liability being such a high focus in our industry now, the settlement could only help in making a sale more likely,” said Jon Henschen, president of the recruiting firm Henschen and Associates, in an interview with AdvisorOne. Still, Henschen notes, there’s always the possibility that issues could arise with other alternative investments sold by Securities America reps. And individual arbitration over the private-placement sales could continue, according to legal documents.
“We are very pleased to put this matter behind us,” said Janine Wertheim, president of Securities America Advisors, in a statement. “Although thousands of people and companies were harmed by the alleged fraud committed by the principals of Medical Capital and Provident Royalties, investors who purchased these programs through Securities America will receive a meaningful return of their investment in addition to any potential distributions from the receiver’s for these entities.”
Ameriprise said it put Securities America up for sale in April. “It is possible that this [settlement] is a … step in a planned sale, meaning the deal is done, and this was one of the conditions to the acquisition,” said Chip Roame, head of the consultancy Tiburon Strategic Advisors, in an interview. “I have no evidence of this fact, but it is often true,” he added.
“The previously announced sale of Securities America is progressing as anticipated,” the company stated in late July as part of its second-quarter earnings press release.
There are some 2,158 members of the class-action settlement, and 30 of them have opted out of it. “According to counsel for Securities America, two or these opt-outs have not filed claims at this time, and the remaining 28 opt-outs have elected to pursue individual arbitrations,” said Senior U.S. District Judge Royal Furgeson in the court order.
The class-action settlement is being funded through a special-purpose loan extended to Securities America by Ameriprise Financial, which aims to sell the broker-dealer.
“Based on the information provided to the courts by the parties, this settlement would provide a recovery of approximately 40 cents on the dollar to class members, minus attorneys’ fees, costs and administrative expenses,” reads the order.
(A case in Massachusetts involving a group of Medical Capital investors entailed the recovery of 100 cents on the dollar.)
In its discussion of such a “full recovery,” Judge Furgeson explained: “As the court has repeatedly observed throughout this litigation, the undercapitalized and underinsured nature of the business model used by Securities America would have ensured that, even if the plaintiffs were to secure a legal victory in this case, Securities America and SAFC would not possess nearly enough
A separate settlement of $70 million involves those who had begun arbitration proceedings against Securities America, Securities America Financial Corporation or Ameriprise. “Over 650 arbitration claimants are included in this separate settlement with Securities America, which does not require the approval of this court in this order,” the document stated.
Lawsuits in Other States
The $80 million settlement “does not prevent a state such as Montana from bringing claims or charges against Securities America, SAFC or Ameriprise for violating its laws or securities regulation,” the court said.
If a state choose to bring claims or charges, there is “no impediment to the assessing of fines, penalties or injunctive relief against the settling defendants,” according to the order.
There are six Provident investors who are residents of Montana, five of whom have claims covered by the $80 million settlement and one of whom is an arbitration claimant covered by the $70 million settlement.
“The court is convinced that the proposed settlement before it provides a fair, reasonable and adequate recovery for class members …,” Furgeson stated in the court order.
Some Securities America rivals have been wooing its advisors since earlier this year. Commonwealth Financial, for instance, recently said it had attracted three top-producing advisor groups.
“I am not sure [the settlement] will stem the loss of advisors,” Roame said. “But I also don’t think the loss will be huge. I think most advisors will hang out to see the deal offered by the acquirer.”
Among the possible suitors, Ladenburg Thalmann—which owns Triad Advisors and Investacorp—appears to be at the top of the list.