Securities Law Blog

Dallas, Texas Judge W. Royal Furgeson Jr. did not approve the $21 million class action settlement between Securities America Inc. and former clients suing the firm over the Reg D offerings from Medical Capital Holdings, Inc. and Provident Royalties LLC.

Part of the proposed settlement was to determine if Securities America clients could continue their individual arbitration claims over the failed private placement investments, or if they would be required to drop their claims and join the class action.

Judge Furgeson’s previous decision to temporarily halt legal actions brought by Massachusetts, Montana, and individual arbitration claims, while he decided on the proposed settlement, received much criticism. The North American Securities Administrators Association Inc. (NASAA) blasted the judge’s decision in a legal brief it filed in a Dallas federal court.

In its brief, NASAA argued that “the request by the [class action] plaintiffs to enjoin the state regulators will not only terminate the efforts of the Massachusetts and Montana regulators, but it will have a chilling effect on all state securities regulators in that, despite their clear statutory authority to take steps necessary to police illicit conduct in their states, they potentially face having that authority impaired by defendants who would run to federal courts to plead poverty.

With Securities America reportedly spending $1.5 to $2 million each month on legal fees, Securities America Chief Financial Officer testified that if the settlement wasn’t approved, the firm “could go bust” soon due to defense costs and arbitration awards.

Arriving at his decision to deny the proposed settlement, Judge Furgeson focused on Securities America’s business model and its relationship with its parent company, Ameriprise Financial Inc. Judge Furgeson reportedly reviewed how Ameriprise benefited from positive revenue growth at Securities America and the movement of money between Securities America business entities and Securities America and Ameriprise entities.

Judge Furgeson’s decision pushes the class action lawsuit, Billitteri v Securities America et al., back to the U.S. District Court in the Central District of California. The case was moved to Dallas because Judge Furgeson is overseeing the class action claim against Securities America and other broker-dealers that sold Provident Royalties investments.