Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Thursday, June 13, 2024 | Back issues
Courthouse News Service Courthouse News Service

Class Claims Ameriprise Presided Over Ponzi

OMAHA (CN) - Securities America, a subsidiary of Ameriprise Financial, ran a $700 million Ponzi scheme in promissory notes, investors say in a federal class action. The class claims Securities America ignored repeated warnings from its advisers to disclose the truth, and claimed that providing risk information to its own brokers and investors would "be a bad thing."

Lead plaintiff, the Zinner Family Trust, filed on behalf of all Securities America investors who bought notes from any of three Medical Capital Corps. or "Med Cap" special purpose corporations from 2004-2008. The Zinners say the Med Cap notes they bought for $768,000 are now worthless.

"Securities America sold over $680 million in Med Cap notes in what turned out to be a $2.0 billion Ponzi scheme," the complaint states. "Today, $358 million of those notes are in default; the United States Securities & Exchange Commission has filed a civil action against Med Cap and its officials; a receiver has been appointed to recover assets; and most recently, Massachusetts Securities Division deposed form officials from defendant Securities America's due diligence committee and reviewed hundreds of documents that Securities America produced. That culminated in the Massachusetts complaint and its revealing a shocking course of conduct by defendants that has left investors like Zenner [sic] with crippling losses."

When Securities America's due diligence advisers reported that there were material risks with the investments, the company "blindly accepted" Med Cap explanations that due diligence advisers called "BS," according to the complaint.

Thomas Cross, head of sales and due diligence committee chairman, testified in a previous, related case that providing information on the risks of investing in Med Cap notes to Securities America's brokers and investors would "be a bad thing," the complaint states.

Under the control of Minneapolis-based Ameriprise Financial, and its wholly owned subsidiary Securities America Financial Corp., Securities America acted as a statutory underwriter to sell $697 million of securities issued by Tustin, Calif., medical receivables company Med Cap, according to the complaint.

The class claims that Med Cap was a $2 billion Ponzi scheme, the subject of a 2009 SEC civil action and a Massachusetts enforcement action. A company official called Securities America, based in La Vista, Neb., one of the largest distributors of Med Cap notes, according to the complaint.

The class claims Securities America failed to address recommendations raised in reports by its due diligence advisers as early as 2003, and withheld the reports from its brokers who sold the notes, and from investors.

Securities America also ignored its advisers' warnings about Med Cap's misleading Private Placement Memoranda, but circulated the misleading memoranda, the class says.

It claims that the company was warned in 2005 by due diligence adviser RTA Financial Analysis that Med Cap - as in a classic Ponzi scheme - "may use some of the offering proceeds to pay interest [or] repay principal."

Also in 2005, advisers allegedly expressed grave concern about Med Cap's lack of audited financial statements and its reluctance to have an independent auditor produce such reports.

The class claims that one Med Cap entity often sold receivables to another, and in each subsequent transaction Med Cap paid more for the same receivable, despite its becoming increasingly stale and losing value. The plaintiffs say this act and others like it set "[a] shocking course of conduct by defendant that has left investors like Zinner with crippling losses."

When made aware that Med Cap did not comply with generally accepted accounting principles, Securities America allegedly refused to act at its advisers' urging and review Med Cap's bank statements or tax returns for solvency and profitability.

The Zinners seek damages for statutory and common law violations and for the dividends they are owed.

They are represented by Gail Boliver of Boliver and Bidwell in Omaha, and Sonn & Erez of Fort Lauderdale, Fla.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.