Ameriprise Financial, Inc. obtained final court approval of a class action settlement. In July 2009, two issuers of private placement interests (Medical Capital Holdings, Inc./Medical Capital Corporation and affiliated corporations, and Provident Shale Royalties, LLC and affiliated corporations) sold by Ameriprise’s subsidiary, Securities America, Inc., were the subject of SEC actions (brought against those entities and individuals associated with them.) That resulted in the filing of several class action lawsuits naming both Securities America, Inc. and Ameriprise Financial. There were also regulatory inquiries.
Approximately $400 million of Medical Capital and Provident Shale investments were made by Securities America clients are outstanding and currently in default. Medical Capital and Provident Royalties are both in receivership. A large number of FINRA arbitrations were also brought against Securities America, Inc. Several of them were individually settled, and there was one adverse ruling. The putative class actions and arbitrations generally allege violations of state and/or federal securities laws in connection with the sales of these private placement interests. These actions were commenced in September 2009 and thereafter.
The Medical Capital-related class actions were centralized and moved to the Central District of California by order of the United States Judicial Panel on Multidistrict Litigation under the caption “In re: Medical Capital Securities Litigation.” The Provident Shale-related class actions remain pending in Texas federal court.
On June 22, 2010, the Liquidating Trustee of the Provident Liquidating Trust filed an adversary action (“Liquidating Trustee Action”) in the Provident bankruptcy proceeding naming Securities America, Inc. on behalf of both the Provident Liquidating Trust and a number of individual Provident investors who are alleged to have assigned their claims. The Liquidating Trustee Action generally alleges the same types of claims as are alleged in the Provident class actions, as well as a claim under the Bankruptcy Code. The Liquidating Trustee Action has been moved from bankruptcy court to the Texas federal court with the other Provident class actions.
On January 24, 2011, the Medical Capital class action was temporarily transferred to the federal court for the Northern District of Texas (the Court), where the Provident class action is pending, so that coordinated settlement negotiations could be conducted under that single Court’s supervision. On February 17, 2011, the named plaintiffs to the class actions filed with the Court a Settlement Agreement and Motion for Preliminary Approval of Class Action Settlement, seeking the Court’s approval of agreed-upon settlement terms. That settlement was recorded as a subsequent event to the 2010 fourth quarter and reflected in Ameriprise’s audited 2010 financial statements. On March 18, 2011, the Court declined to grant preliminary approval of that settlement.
On April 15, 2011, Securities America, Inc. and its holding company, Securities America Financial Corporation entered into new settlement agreements which, in exchange for release of pending arbitration and litigation claims (including certain class action claims pending against Ameriprise and the claims brought by the Liquidating Trustee), provide for the payment of a total of $150 million, $40 million of which was previously reported and charged to Ameriprise’s fourth quarter 2010 results as described above. The combined settlements, together with other provisions for claims relating to Medical Capital or Provident Royalties resulted in a $118 million pre-tax expense in Ameriprise’s first quarter 2011 results.
The new settlements are subject to certain conditions, including participation requirements for claimants to be covered by the settlements, and preliminary and final review and Court approval of the class action settlement. The Court issued an order finally approving the class action settlement on August 4, 2011. A related Administrative Complaint brought against Securities America, Inc. by the Commonwealth of Massachusetts on January 26, 2010, was also settled on May 24, 2011 with an agreement to pay $2.8 million to Massachusetts investors.
