March 22, 2011

As Ameriprise Hopes to Mediate New Settlement, Securities America Reps Look to Jump Ship

Securities America reps that sold tainted private placements will likely have trouble finding a new home

While Ameriprise Financial will likely be stepping in soon to mediate a settlement regarding its embattled broker-dealer subsidiary, Securities America, recruiters say that many Securities America reps are already contemplating jumping ship.

Securities America, Ameriprise and the plaintiffs’ attorneys involved in the class action settlement that was rejected by a U.S. district judge in Dallas on March 18, will be meeting in Chicago on Thursday to mediate a settlement, according to one recruiter who has requested anonymity. The plaintiffs’ attorneys will likely come to the table with a “higher amount” than the current "eight cents on the dollar" that Securities America’s customers were to receive, the recruiter says.

While Ameriprise Financial did not respond to requests by AdvisorOne to comment for this story, the company did release the following statement on its website: Ameriprise said that while "it has no financial obligation to participate in Securities America's settlement discussions, we have reached out to Securities America to determine if we can help the parties find a reasonable resolution for all constituents."

Ameriprise went on to say that Securities America was one of "many firms that distributed Medical Capital and Provident Shales securities." The securities, Ameriprise said, which were registered with the Securities and Exchange Commission (SEC) as Reg D offerings, "is a widely distributed asset class."

The recruiter said that while this potential new settlement would be good news for Securities America, “even if [the BD] settles with all of the plaintiffs’ attorneys, [Securities America] still has the Montana and Massachusetts [suits] sitting on the sidelines” with other states “coming after them. I don’t see how [Securities America] survives this.”

Indeed, Danny Sarch of Leitner Sarch Consultants, an executive search firm in White Plains, N.Y, argues that Securities America is “a damaged brand.” The advisors that have sold the private placements at issue, he says, “have regulatory issues and are going to have problems with their clients.”

U.S. District Judge Royal Furgeson on March 18 rejected a class action settlement under which independent broker-dealer Securities America would have paid $21 million to settle charges that it didn’t conduct the proper due diligence on investments sold by Securities America reps from Provident Royalties LLC and Medical Capital Holdings Inc.

james nagengast of securities americaThe judge’s decision allows arbitration cases to proceed in separate states—like Montana and Massachusetts—where securities regulators have brought action against Securities America and its management, including CEO Jim Nagengast (left).

Recruiters say that many Securities America reps are now busy working on a “back-up plan.” Securities America reps are saying: “ ‘I hope things work out here, I don’t want to move. But when push comes to shove, I need to have a back-up plan in place,’ ” said one recruiter. Yet another recruiter said that “every call” his firm had received in the last 24 hours has been from a Securities America rep. Movement is “rampant across the Securities America network,” the recruiter said.

The issue now is whether Securities America reps involved in selling the tainted private placements can find a new home. Sarch warns that firms “hiring Securities America advisors should do their homework, to make sure the advisors don’t have these placement sales on their books.” Broker-dealers contemplating taking on a Securities America rep “really need to look carefully to see if it makes sense at all,” Sarch continues, “especially given the potentially damaged relationships between these advisors and their clientele.”

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