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Securities regulators in Massachusetts and Montana asked a federal court judge to deny a request for a preliminary injunction that could halt their proceedings against Securities America Inc. and other defendants.
The regulators argue in a joint brief that their states have authority to regulate securities fraud independently of federal law. William Galvin, secretary of the Commonwealth of Massachusetts and Monica Lindeen, Commissioner of Securities and Insurance, Montana State Auditor, filed the brief on Monday in U.S. District Court for the Northern District of Texas.
Lawyers for the lead plaintiffs in a class-action suit against Securities America, a unit of Ameriprise Financial Inc. (AMP) suggested in February that a Dallas federal court stop, at least temporarily, Massachusetts and Montana regulators from continuing certain proceedings involving the brokerage's sales of private placements, according to court documents. Securities America can't afford to pay the more than $300 million in investor claims, they say. According to them, investors should share equally in a $21 million settlement fund.
A group of Securities America investors filed the class action in 2009. They want to establish a general fund for reimbursing losses suffered by investors who purchased two private-placement offerings by Provident Royalties LLC and Medical Capital Holdings Inc. A flood of securities arbitration cases against Securities America allege the firm didn't conduct adequate due diligence of the offerings. The Securities and Exchange Commission brought civil fraud charges against the two issuers in July 2009.
Massachusetts regulators charged Securities America in 2010 with improper sales of notes issued by Medical Capital Holdings.
In August, Montana securities regulators filed a cease-and-desist order against Securities America. They alleged that Securities America and some of its executives "withheld material information regarding the heightened risks" of private placements it sold that were issued by Medical Capital.
The regulators, who aren't parties to the case, also say the federal court doesn't have jurisdiction over their proceedings.
A national organization of state securities regulators also filed a brief that raised concerns about the potential involvement of federal courts in state securities cases. "It will have a have a chilling effect on all state securities regulators," wrote a lawyer for the North American Securities Administrators Association in Washington, D.C. State securities regulators, they said, potentially face having their authority to police conduct "impaired by defendants who would run to federal courts to plead poverty."
A hearing in the class-action case is scheduled for Friday in Dallas.
A Securities America spokeswoman didn't return a call and email requesting comment.
-By Suzanne Barlyn, Dow Jones Newswires; 212-416-2230; firstname.lastname@example.org