Securities America told its representatives in an e-mail message on Tuesday that it was making “very good progress toward finalizing a settlement of the Medical Capital and Provident Shale matters,” referring to the sale by Securities America reps of certain Regulation D private placement securities from MedCap and Provident.
Moreover, Janine Wertheim, the broker-dealer’s senior VP and chief marketing officer, wrote to reps that the firm expected to file a settlement agreement on the class action suits “within the week,” and that Securities America is “receiving good support of settlement terms from clients."
On March 18, federal judge Royal Furgeson in Dallas rejected a class action settlement by multiple claimants who said they had lost $400 million in gas investments from Provident Royalties LLC. and medical receivables debt from Medical Capital Holdings Inc. that were sold by Securities America reps. Both companies have been charged with fraud by the SEC. Both are also in receivership.
That earlier settlement would have allowed Securities America to pay $21 million, or about $0.05 on the dollar, to settle the charges. The judge’s decision also allowed arbitration cases to proceed in states such as Montana and Massachusetts where securities regulators have brought action against Securities America and its management.
What Your Peers Are Reading
Reports in The New York Times and Reuters, which AdvisorOne could not independently confirm as of press time, put the new settlement figure at $180 million (The Times) and $150 million (Reuters). Both reported that “hundreds” of clients (The Times) and “dozens” (Reuters) have agreed to the settlement, enough to finalize the deal. “The deadline for clients to sign on was Sunday,” wrote New York Times Dealbook’s Susanne Craig Tuesday night, “and the vast majority of clients agreed to the settlement.” Reportedly, Securities America parent company Ameriprise Financial would likely contribute the greater share of any settlement.
Reuters’ Joseph Giannone wrote Tuesday night that attorney Daniel Girard of San Francisco-based Girard Gibbs, “confirmed there was an agreement in
principle to settle the class action suit for $80 million.” He also wrote that “Securities America separately agreed to pay $70 million to investors currently pursuing claims in industry arbitration.” Should those numbers be accurate, it would translate, wrote Giannone, to a “recovery rate of 40 cents on the dollar, net of fees.”
An Industry-Wide Misjudgment?
“The settlement appears to have taken place because the plaintiffs’ attorneys did the simple math. Thirty percent of zero is zero. If they’d pushed it too far, the plaintiffs could have ended up with nothing,” said executive-search consultant Mark Elzweig, in an interview with AdvisorOne on Wednesday.
“It’s really hard to make the case that Securities America is guilty of any particular malfeasance," Elzweig (left) said, since these products "were sold by more than 30 broker-dealers. It’s the instance of an industry-wide misjudgment; many other BDs made the same mistake.”
As for the long-term impact of the case, Elzweig said that on the one hand, “It could blow over rather quickly. Ameriprise stepped in, resolved it and will continue to do so, which is a strong positive going forward for Securities America.”