Ameriprise 2007 Annual Report Download - page 99

Ameriprise Financial 2007 Annual Report 97
The following table presents the Company’s funding commitments:
December 31,
2007 2006
(in millions)
Commercial mortgage loan commitments $101 $ 94
Consumer mortgage loan commitments 301 427
Consumer lines of credit 91 96
Total funding commitments $493 $617
The Company’s life and annuity products all have minimum interest
rate guarantees in their fixed accounts. As of December 31, 2007,
these guarantees range up to 5%. To the extent the yield on the
Company’s invested asset portfolio declines below its target spread
plus the minimum guarantee, the Company’s profitability would be
negatively affected.
The Company and its subsidiaries are involved in the normal course
of business in legal, regulatory and arbitration proceedings, including
class actions, concerning matters arising in connection with the
conduct of its activities as a diversified financial services firm. These
include proceedings specific to the Company as well as proceedings
generally applicable to business practices in the industries in which it
operates. The Company can also be subject to litigation arising out of
its general business activities, such as its investments, contracts, leases
and employment relationships. Uncertain economic conditions and
heightened volatility in the financial markets, such as has been
experienced particularly since the summer of 2007, may increase the
likelihood clients and other persons or regulators may present or
threaten legal claims or that regulators increase the scope or
frequency of examinations of the Company or the financial services
industry generally.
In the normal course of business, the Company has agreed to indem-
nify certain vendors for infringement and misappropriation claims
arising from the use of its information, technology and intellectual
property assets.
As with other financial services firms, the level of regulatory activity
and inquiry concerning the Company’s businesses remains elevated.
From time to time, the Company receives requests for information
from, and has been subject to examination by, the SEC, FINRA
(then known as the National Association of Securities Dealers), OTS,
state insurance regulators, state attorneys general and various other
governmental and quasi-governmental authorities concerning the
Company’s business activities and practices, including: sales and
product or service features of, or disclosures pertaining to, financial
plans, its mutual funds, annuities, insurance products and brokerage
services; non-cash compensation paid to its field leaders and financial
advisors; supervision of its financial advisors; 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 administration of death claims to multiple beneficiaries
under the Company’s variable annuities, the portability (or network
transferability) of the Company’s RiverSource mutual funds, supervi-
sory practices in connection with financial advisors’ outside business
activities, sales practices associated with the sale of fixed and variable
annuities, the suitability of product recommendations made to retail
financial planning clients and the delivery of financial plans, and the
suitability of particular trading strategies. The number of reviews and
investigations has increased in recent years with regard to many firms
in the financial services industry, including Ameriprise. 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 financial condition or results of
operations.
Certain legal and regulatory proceedings are described below.
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, and was later transferred to the United States District Court
for the District of Minnesota. The plaintiffs alleged that they were
investors in several of the Company’s mutual funds and they
purported to bring the action derivatively on behalf of those funds
under the Investment Company Act of 1940. The plaintiffs alleged
that fees allegedly paid to the defendants by the funds for investment
advisory and administrative services were excessive. On July 6, 2007,
the Court granted the Company’s motion for summary judgment,
dismissing all claims with prejudice. Plaintiffs have appealed the
Court’s decision.
In March 2006, a lawsuit captioned Good, et al. v. Ameriprise Finan-
cial, Inc., et al. (Case No. 00-cv-01027) was filed in the United States
District Court for the District of Minnesota. The lawsuit had been
brought as a putative class action and plaintiffs purported to repre-
sent all of the Company’s advisors who sold shares of REITs and tax
credit limited partnerships between March 2000 and March 2006.
Plaintiffs sought unspecified compensatory and restitutionary
damages as well as injunctive relief, alleging that the Company incor-
rectly calculated commissions owed advisors for the sale of these
products. On January 18, 2008, the Court denied plaintiffs’ motion
for class certification. The Court has requested supplemental briefs
addressing whether the Court continues to have subject-matter juris-
diction over the two individual plaintiffs’ claims.
The Company previously reported two adverse arbitration awards
issued in 2006 by FINRA panels against SAI and former registered
representatives of SAI. Those arbitrations involved customer claims
relating to suitability, disclosures, supervision and certain other sales
practices. Other clients of those former registered representatives have
presented similar claims.
In October 2007, the State of New Hampshire commenced an action
against the Company captioned, “In the Matter of Ameriprise Finan-
cial, Inc., Ameriprise Financial Services, Inc. & Larry Post.” The
action includes claims of New Hampshire statutory violations related
to the alleged failure to deliver financial plans sold to clients,
instances of forgery and failure to supervise. The parties have agreed
to stay the action while discussing possible resolution.