Ameriprise settles investor suit for $27 million: lawyer

NEW YORK (Reuters) - Ameriprise Financial Inc agreed to pay $27 million to settle lawsuits filed by clients of its independent-brokerage unit who bought private placements in companies later revealed to be Ponzi schemes, a lawyer for the plaintiffs said on Thursday.

Two weeks ago the unit, Securities America, agreed to a separate $21 million settlement with the same class of roughly 2,000 investors, who lost about $300 million.

Daniel Girard of San Francisco-based law firm Girard Gibbs, attorney for the investors, said both class-action cases were filed in 2009.

Officials from Ameriprise were not available for comment. Janine Wertheim, a spokeswoman for Securities America, said in an email that the firm was pleased the settlement was going to a federal judge for approval.

"We believe this represents good progress as we pursue a resolution to this matter," she wrote.

Securities America, based in La Vista, Nebraska, is one of many broker-dealers who sold private-placement interests in two companies -- Medical Capital and Provident Royalties -- that went bust in 2009. U.S. securities regulators accused the companies of fraud in July of that year.

Girard told Reuters in an interview that the settlements, combined with up to $4 million of insurance money, could yield about $52 million to be distributed among victims.

That works out to 20 cents on the dollar, he said, "which by the standards of this sort of litigation is an excellent outcome." In many Ponzi schemes, there are no assets left to recover, he said.

"There has been a fair amount of scrutiny directed at the advisers," he said. "As securities professionals, there were enough warning bells and red flags that they should have asked more questions than they did."

Ameriprise, he noted, was not directly involved in approving the private placement transactions. It was sued as a "control person," given its ownership and oversight of Securities America, he added.

The Ameriprise settlement was first reported by Investment News.

In its annual report filed on Monday, Ameriprise disclosed that Securities America clients faced nearly $400 million in losses from Medical Capital and Provident Royalties.

Ameriprise, one of the country's largest financial planning and wealth management firms, in its annual report said it has reserved about $40 million to cover claims.

In addition to the class actions, Ameriprise and Securities America face complaints in Massachusetts and "a significant volume" of individual arbitration claims.

Securities America is a network that provides support services to about 1,800 self-employed brokers who generated $500 million in revenue last year. These brokers do not use the Ameriprise brand.

A possible sticking point is that the class-action settlements require Securities America clients to drop their arbitration claims. Investors pursuing these claims might hope to recover 100 percent of their losses and so might opt out of the class action.

Girard warned that investors run the risk that Securities America may be unable to pay claimants at the end of the line.

The proposed class-action settlement is "greater than the net worth" of Securities America, he said. About $11 million of the Securities Americas settlement will have to be paid out of future earnings, he said.

"These businesses operate on a very thin capital base. They don't have a significant capital margin with which to respond to damages when these things go south."

According to Ameriprise's annual report, Securities America had $2 million of capital at the end of last year, down from $15 million at the end of 2009. Ameriprise said the regulatory capital requirement is less than $1 million.

The Securities America spokeswoman did not respond to Girard's comments on the firm's financial condition.

The proposed settlements must be approved by a judge in federal court in Dallas. A hearing is scheduled for March 18.

Over the past to years, the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority have been investigating sales of private placements, lightly regulated transactions that are supposed to be restricted to wealthy "accredited" investors.

In recent years, these deals have been offered to a wider range of investors, including many who may not understand the risks. Small investors have snapped up the deals because they offer slightly better yields in an era of razor-thin interest rates.

(Reporting by Joseph A. Giannone; editing by John Wallace)