Securities America customers have lost about $400 million on private placements the SEC says were fraudulent, prompting parent company, Ameriprise Financial, to increase legal reserve by $40 million, or 10%.  Dozens of independent broker-dealers also sold the high-risk products, and some have closed down because of legal costs.  

The anticipated class actions and legal claims relate to sales of Medical Capital Holdings Inc. and Provident Royalties LLC.  "Approximately $400 million of Medical Capital and Provident Shale investments made by (Securities America) clients are outstanding and currently in default," Ameriprise reported in its annual report.  The SEC charged the issuers with fraud in 2009.

In February, a federal judge in Dallas halted all arbitration claims relating to these investments so that a preliminary class action settlement could be heard in the U.S. District Court for the Northern District of Texas.  As part of the restraining order, Securities America agreed to contribute about $21 million to an investor fund.  Preliminary hearings are set for 3/18.  Attorneys representing individual investors are strongly opposed to any class action settlement that prevents their clients from taking Securities America to FINRA arbitration.   [Investment News, 2/28]