Investors who accused Securities America and its parent, Ameriprise Financial, of selling fraudulent interests in Medical Capital ("MedCap") and Provident Royalties found themselves odds in a federal court in Dallas, with some investors realigning their interests with the firms they sued.
Attorneys for investors who filed a class action lawsuit against the firms had secured a settlement agreement that would pay nearly $50 million to the thousands of investors victimized by these deals. The catch, however, was that individuals who wanted to pursue their own claims in arbitration against their advisors had to be forced to participate in the class settlement and abandon their individual cases against Securities America and Ameriprise.
This condition was significant to the firms because the individual arbitration claims exposed the broker-dealer to the potential for huge liabilities. In a class action, any settlement would be equitably distributed among all class members who had similar cases but who did not want to pursue claims on their own. Typically, class members have the right to opt-out of any class settlement and file their own lawsuits without regard to any other payments the defendant made. The benefits of class action settlements are greater to a defendant when larger numbers of class members participate in a class settlement.
With the MedCap litigation the class action settlement was less attractive to many victims because of the possibility of larger awards in favor of investors who decided to forego the class action and instead file their own arbitration claims. In January, 2011, one couple who sued the firm won an arbitration award of $1.2 million. Given the large number of investors who lost an estimated $400 million in MedCap, the likelihood of individual arbitration awards threatened Securities America's very existence.
Accordingly, Securities America and Ameriprise sought to eliminate the greater threat posed by individual cases by insisting that all MedCap and Provident investors be forced to participate in the class settlement. The settlement was submitted to the court, which had to decide on the viability of that structure. As a result, investors who opted out of the class action battled investors who wanted the class action settlement to be approved.
On March 18, 2011, the federal court judge overseeing the class action rejected the settlement, allowing aggrieved investors to continue their individual arbitration cases. The status of the agreement to settle the class action lawsuit remains up in the air.
Investors who have lost money from investments in Medical Capital or Provident Royalties should make sure they consult with experienced investment fraud lawyers to investigate their right to recover their losses.
