Ameriprise 2006 Annual Report Download - page 101

or disclosures pertaining to, financial plans, the Company’s
mutual funds, annuities, insurance products and brokerage
services; non-cash compensation paid to the Company’s
financial advisors; supervision of the Company’s financial
advisors; operational and data privacy issues relating to the
theft of a laptop computer containing certain client information;
compliance with postal regulations; and sales of, or brokerage
or revenue sharing practices relating to, other companies’ real
estate investment trust (“REIT”) shares, mutual fund shares or
other investment products. Other open matters relate, among
other things, to the portability (or network transferability) of the
Company’s RiverSource mutual funds, the suitability of product
recommendations made to retail financial planning clients,
licensing matters related to sales by the Company’s financial
advisors to out-of-state clients and net capital and reserve
calculations. The number of reviews and investigations has
increased in recent years with regard to many firms in the
financial services industry, including the Company. The
Company has cooperated and will continue to cooperate with
the applicable regulators regarding their inquiries.
These legal and regulatory proceedings are subject to
uncertainties and, as such, the Company is unable to estimate
the possible loss or range of loss that may result. An adverse
outcome in one or more of these proceedings could result in
adverse judgments, settlements, fines, penalties or other relief
that could have a material adverse effect on the Company’s
consolidated results of operations or financial condition.
Certain legal and regulatory proceedings involving the
Company are described below.
In November 2002, a suit, now captioned Haritos et al. v.
American Express Financial Advisors Inc., was filed in the
United States District Court for the District of Arizona. The suit
was filed by plaintiffs who purport to represent a class of all
persons that have purchased financial plans from the Company’s
financial advisors from November 1997 through July 2004.
Plaintiffs allege that the sale of the plans violates the
Investment Advisers Act of 1940. The suit seeks an unspecified
amount of damages, rescission of the investment advisor plans
and restitution of monies paid for such plans. On January 3,
2006, the Court granted the parties joint stipulation to stay the
action pending the approval of the proposed settlement in the
putative class action, “In re American Express Financial Advisors
Securities Litigation.”
In June 2004, an action captioned John E. Gallus et al. v.
American Express Financial Corp. and American Express
Financial Advisors Inc., was filed in the United States District
Court for the District of Arizona. The plaintiffs allege that they
are investors in several of the Company’s mutual funds and
they purport to bring the action derivatively on behalf of those
funds under the Investment Company Act of 1940. The plain-
tiffs allege that fees allegedly paid to the defendants by the
funds for investment advisory and administrative services are
excessive. The plaintiffs seek remedies including restitution
and rescission of investment advisory and distribution agree-
ments. The plaintiffs voluntarily agreed to transfer this case to
the United States District Court for the District of Minnesota.
In response to the Company’s motion to dismiss the
complaint, the Court dismissed one of plaintiffs’ four claims
and granted plaintiffs limited discovery. Discovery is currently
set to end in March 2007.
In October 2005, the Company reached a comprehensive
settlement regarding the consolidated securities class action
lawsuit filed against the Company, its former parent and
affiliates in October 2004 called, “In re American Express Financial
Advisors Securities Litigation.” The settlement, under which the
Company denies any liability, includes a one-time payment of
$100 million to the class members. The class members
include individuals who purchased mutual funds in the
Company’s Preferred Provider Program, Select Group Program,
or any similar revenue sharing program, purchased mutual
funds sold under the American Express®or AXP®brand; or
purchased for a fee financial plans or advice from the Company
between March 10, 1999 and through April 1, 2006. On
February 14, 2007, the court preliminarily approved the settle-
ment and set a Final Fairness Hearing for June 4, 2007. Two
lawsuits making similar allegations (based solely on state
causes of actions) are pending in the United States District
Court for the Southern District of New York: Beer v. American
Express and American Express Financial Advisors and You v.
American Express and American Express Financial Advisors.
Plaintiffs have moved to remand the cases to state court. The
Court’s decision on the remand motion is pending. For the year
ended December 31, 2005, the Company recorded a loss
provision to increase its litigation reserves for these matters of
$100 million.
In March 2006, a lawsuit captioned Good, et al. v. Ameriprise
Financial, Inc. et al. (Case No. 00-cv-01027) was filed in the
United States District Court for the District of Minnesota. The
lawsuit has been brought as a putative class action and
plaintiffs purport to represent all of the Company’s advisors
who sold shares of REITs and tax credit limited partnerships
between March 2000 and March 2006. Plaintiffs seek
unspecified compensatory and restitutionary damages as well
as injunctive relief, alleging that the Company incorrectly
calculated commissions owed advisors for the sale of these
products. The Court denied the Company’s motion to dismiss,
and the matter now proceeds to discovery.
On May 15, 2006, an NASD panel issued a decision regarding
customer claims relating to suitability, disclosures, supervision
and certain other sales practices in an arbitration proceeding
captioned Wayland Adams et al. vs. David McFadden and
Securities America, Inc. (brought by a group of 44 claimants).
The arbitrators ruled against SAI and its former registered
representative and awarded the plaintiffs $22 million and, in
connection with this matter, SAI agreed with the NASD to have
an independent consultant review its retirement planning and
variable annuity exchange practices. Other clients of this
former registered representative have presented claims which
are pending.
On December 22, 2006, an NASD panel issued a decision
regarding customer claims relating to suitability, disclosures,
supervision and certain other sales practices in an arbitration
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Ameriprise Financial, Inc. 2006 Annual Report