Judge Rejects Securities America’s Attempts to Settle Class Actions Involving Medical Capital Notes and Provident Royalties Securities


A federal judge has refused to approve a proposed class action settlement between Securities America and a class of people who purchased hundreds of millions of fraudulent securities issued by Medical Capital and Provident Royalties, that were sold by Securities America. See Dan Levine’s and Joseph Giannone’s article in Reuters captioned, “Judge rejects settlement with Ameriprise unit,” and Bruce Kelly’s InvestmentNews article, “CFO: Securities America on the brink without legal settlement.”

The claims against Securities America are based on the fact that it knew or should have known that the Medical Capital and Provident Royalties securities it sold to investors were deeply flawed, yet it kept that information to itself and failed to make appropriate disclosures to its clients who purchased them.

The proposed class settlement, engineered by attorneys for Securities America and the named class plaintiff, elicited vehement opposition from state regulators and investors’ attorneys. A hearing on the proposed settlement was held on March 18, after which the judge rejected it.

The objections centered on the fact that the settlement, if approved, would have netted investors only pennies on the dollar, investors would not have been allowed to opt-out and pursue their own individual actions, and it would have put an end to all proceedings against Securities America, even those brought by regulators to enforce the securities laws.

The main questions now are whether Securities America will make good on its threat to file for bankruptcy, and whether its parent company, Ameriprise Financial, will step in to provide a reasonable recovery for defrauded investors. Ameriprise could do so voluntarily. Failing that, it will certainly face a barrage of claims based on its control over its subsidiary, Securities America. Parent companies can be held responsible for violations committed by their subsidiaries under the securities laws.

Indeed, another federal judge recently ruled that an institutional investor that lost over $200 million in auction rate securities sold by brokerage firm Deutsche Bank Securities can also bring a claim against that firm’s parent company, Deutsche Bank AG, according to a recent BNA article entitled “Deutsch Bank Loses Bid to Dismiss Control Person Claims by ARS Investor.” The case is pending in the U.S. District Court for the District of Massachusetts, styled as Akamai Technologies Inc. v. Deutsche Bank AG, D.C. Mass., No. 10-10254-JLT.

Page Perry represents a number of investors who purchased Medical Capital notes from Securities America, and filed an objection to the class settlement to protect their rights.

Page Perry has over 125 years collective experience representing institutional and individual investors in securities-related litigation and arbitration all over the country. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions.