In the wake of a $150 million dollar settlement with investors who alledged they were fraudulently sold private placements in Medical Capital and Provident Royalties by Securities of America (SAI), parent company Ameriprise Financial had put the troubled broker dealer up for sale. Some observers find the timing curious but the firms maintain the sale will have no effect on the proposed settlement.
The full text of the April 25, 2011 Registered Rep article appears below:
Ameriprise Financial (NYSE: AMP) plans to sell its independent broker/dealer unit Securities America, according to the company’s first quarter earnings report released today. Meanwhile, the firm is still in the process of finalizing a settlement with investors claiming SAI sold allegedly fraudulent private placements from Medical Capital Holdings and Provident Royalties.
“A sale would allow SA to focus on growth opportunities in the independent channel and would allow Ameriprise to devote its resources to the Ameriprise branded-advisor business,” the company said.
“I’m shocked at the timing,” said Jonathan Henschen, president of recruiting firm Henschen & Associates, which works mostly with IBDs. “It’s kind of putting the cart before the horse.”
The earnings report said that SAI entered into settlement agreements on April 15 that resulted in a $118 million pre-tax charge during the first quarter, in addition to the $40 million expense in the fourth quarter. The proposed settlement is for $150million, although the independent b/d was originally on the hook for about $400 million in outstanding obligations.
Sophie Schmitt, an analyst with Aite Group, also expressed surprise at the timing of the announcement, given that the settlement hasn’t been finalized. It most likely means there’s something else Ameriprise is concerned with in terms of SAI, she said, and that the lawsuit was the tip of the iceberg. Ameriprise also notoriously didn’t focus its attention on the SAI side of the business, said Schmitt. This sale could be an indication that the parent wants to focus on the core part of its business—Ameriprise employee and franchisee advisors—and withdraw from the independent side.
Ameriprise also may have been struggling with managing a large independent broker network, she added. SAI grew in a very short amount of time, acquiring new advisors, and perhaps it became too big for Ameriprise leadership to manage.
“The motives are obvious,” Henschen said. He believes Ameriprise just wanted to take care of its liability in the lawsuits to make FINRA happy, then get rid of the IBD because of the burden SAI has caused.
Although some reps will stay to see who the firm gets bought by, Henschen expects many reps will scatter, and that this will provide a recruiting opportunity for other firms. The sale should motivate advisors to push forward with Plan B.
According to Henschen, possible buyers might include Advanced Equity, which has been looking for acquisitions; National Planning Holdings; Metlife, which tends to buy at rock-bottom prices; a new venture capital firm looking to make in-roads; or a wirehouse.
The attorneys at Colling Gilbert Wright & Carter are currently investigating claims against all broker dealers that misrepresented and sold private placements including Medical Capital and Provident Royalties. If you have purchased a private placement and feel the investment was not properly disclosed, please contact our offices. Thank you.