(Dow Jones) Regulators in two states are angered by a suggestion to halt their proceedings against Securities America while a federal judge considers a proposed class-action settlement.

Lawyers for the lead plaintiffs in a class-action suit against Securities America suggested that a Dallas federal court stop Massachusetts and Montana regulators from continuing, at least temporarily, certain state proceedings involving the brokerage's sales of private placements, according to court documents. Securities America, a unit of Ameriprise Financial Inc. (AMP), can't afford to pay the more than $300 million in investor claims, they say. Investors, they say, should share equally in a $21 million settlement fund.

"It's an end-run on the process," William Galvin, secretary of the Commonwealth of Massachusetts, told Dow Jones Newswires on Wednesday. "It's clearly an attempt to thwart investors from recouping their losses," said Galvin, whose office charged Securities America in 2010 with improper sales of notes issued by Medical Capital Holdings. Galvin will oppose the request, he said.

In August, Montana securities regulators filed a cease and desist order against Securities America. The office of the state auditor for the Commissioner of Securities and Insurance in Montana 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.

"We are adamantly opposed to the request," said Jesse Laslovich, the regulator's chief legal counsel. His office intends to work with Massachusetts to try to block a possible restraining order by the federal court, he said.

A group of Securities America investors filed the class action in U.S. District Court for the Northern District of Texas during 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.

Judge W. Royal Furgeson Jr., last week, ordered a temporary halt to three securities arbitration cases pending against Securities America. In December, a Financial Industry Regulatory Authority arbitration panel ordered Securities America to pay an investor more than $1.2 million in damages related to Medical Capital losses. A Securities America spokeswoman confirmed at the time that it was the first among dozens of arbitration claims about its sales of Medical Capital notes to proceed to a hearing.

That setback has made the possibility of a $21 million class-action settlement fund more appealing to Securities America, Galvin alleged. "In class-action suits, investors get very little to show for successful litigation," he said. Securities firms typically "wail" about class-action settlements, he said, but in this case, it's a "port in the storm," he said.

Class-action plaintiffs don't want to halt all types of state proceedings against Securities America, just those with a "restitutionary" purpose, said Daniel C. Girard, a San Francisco-based class-action lawyer for the plaintiffs. States, in restitutionary cases, typically try to recover lost investments made by its citizens, he said.

That argument could shut down Galvin's efforts. "We're trying to make investors whole. Our objective is the rescission of contracts," he said. Sixty-five Massachusetts investors lost money through Securities America's private-placement sales, he said. Montana regulators count seven investors.