Ameriprise and Affiliated Clearing Firm Fined for Failing to Supervise Transfer of Customer Funds

The Financial Industry Regulatory Authority (“FINRA”) announced a fine of $750,000 against Ameriprise Financial Services, Inc (“Ameriprise”) and its affiliated clearing firm, Ameriprise Enterprise Investment Services, Inc. (“AEIS”).  The fine was levied against the firms “for failing to have reasonable supervisory systems in place to monitor wire transfer request.”   Though the fine relates to a compliance issue, the circumstances uncovering the supervisory issues involved an investment fraud perpetrated by an Ameriprise representative, Jennifer Guelinas. 

Guelinas, who is now barred from the securities industry (click here for more info), defrauded investors through a series of fraudulent transfers from clients’ accounts to accounts controlled by her.  This scheme took place from December of 2006 until October of 2010, during which time Guelinas converted over $500,000 from clients’ brokerage accounts.  Sadly, the three clients involved in this securities fraud were senior citizens. 

While neither affirming nor denying the charges, Ameriprise and AEIS consented to FINRA’s finding of failure at the firms to detect multiple red flags concerning Guelinas.  As stated by Brad Bennett, Executive Vice President and Chief of Enforcement at FINRA, "Ameriprise and its affiliated clearing firm missed numerous supervisory red flags, including the fact that two of the wire transfers went to accounts in Guelinas' name. Firms must have robust supervisory systems to monitor and protect the movement of customer funds."

This fraudulent arrangement was only possible because of Ameriprise’s failure to detect this long-operating scheme.  Altogether, Guelinas forged the signatures of her clients over 80 times on wire transfer requests.  This is in addition to forging clients’ signatures on three real estate closing agreements and one promissory note.

Securities America Fraud Victims Settle for Little More Than 30 Cents on the Dollar

Competing claims by customers of Securities America who lost $400 million in allegedly fraudulent securities in Medical Capital and Provident Royalties have finally been resolved. As followed in this blog, the proponents of a class action lawsuit against Securities America and its parent, Ameriprise Financial, sought to force investors who filed their own arbitration proceedings to abandon their own claims and compel them to participate in the class action settlement. The investors in arbitration successful argued for their right to pursue their own claims, and the judge overseeing the class action rejected the onerous settlement agreement.

This week, Securities America agreed to settle the class action claim and the individual arbitration proceedings for a total of $150 million. While that is certainly a significant settlement amount, it nonetheless still means that investors, who will recover slightly more than 30% of their losses, will have to bear the brunt of the MedCap and Provident losses. Given the fact that an investor won an award of $1.2 million against Securities America earlier this year -- an award that included punitive damages to punish the firm for its conduct -- it seems that Securities America secured a global settlement on favorable terms.

Investors who believe they have been defrauded by an investment advisor, or who believes they have suffered investment losses due to broker misconduct, should contact an investment fraud lawyer to investigate their right to recover damages.

Banco Santander Pays $9 Million to Settle Claims It Improper Sold Reverse Convertibles To Elderly Investors

Hardly a week goes by without a report that yet another financial institution has settled claims of selling improper investments to groups of investors, often including senior citizens. This week, the largest bank in Spain, Banco Santander, is reported to have paid $7 million directly to investors and $2 million to the Financial Industry Regulatory Authority ("FINRA") to settle claims that it improper sold high-risk reverse convertibles to elderly, retired investors.

Reverse convertibles are risky, high yield, short-term bonds that automatically convert to the stock of an underlying company's shares if the company's share price rapidly declines. In 2010, banks sold nearly $7 billion worth of these securities to U.S. investors.

According to the allegations, Banco Santander brokers not only sold reverse convertibles to conservative investors, they sometimes recommended that customers use margin to purchase the securities, which had the effect of increasing the risk of significant losses.  Banco Santander is the most recent in a string of fines against banks for improperly selling reverse convertibles. Last year, a subsidiary of Royal Bank of Canada and a subsidiary of Ameriprise Financial were fined a total of $890,000 for similar practices.

Investors who have reverse convertible securities in their portfolios may want to consult with investment fraud lawyers to investigate whether they have a claim to recoup losses incurred by these investments.

Securities America Seeks to Resolve Arbitration Cases Involving Medical Capital and Provident Royalties

Last week, a federal court rejected Securities America's attempt to force arbitration claimants to abandon their cases and require them to participate in a class action settlement that would allow defrauded investors to recover only one-eighth (1/8) of their $400 million in losses due to investments in Medical Capital Holdings, Inc. and Provident Royalties. Securities America's effort to extinguish investors' arbitration rights came on the heels of a customer's $1.2 million arbitration award, which included punitive damages, against the firm for allegedly fraudulent sales of Med Cap securities.

Yesterday, Investment News reported that Securities America has now proposed a settlement of all of the individual investor arbitration claims by offering the claimants nearly 50% of their losses. This offer represents a significant increase from the last offer Securities America made before the federal court ruled last week.

While Securities America's proposal represents its attempt to manage its exposure by settling for a sum certain, the offer was reportedly extended only to investors with existing arbitration claims, and does not provide for claims that may yet be filed in the future.

Investors who have lost money in Med Cap and Provident investments and who believe they have claims against Securities America and its parent, Ameriprise Financial, should contact an investment fraud lawyer to investigate their claims.

UPDATE: Securities America Victims Can Pursue Arbitration Claims for Medical Capital Losses

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.