(Dow Jones) A unit of Ameriprise Financial Inc. (AMP) that is already under fire from regulators for selling allegedly fraudulent private placements is now facing the wrath of securities arbitrators.

A Financial Industry Regulatory Authority ordered Securities America to pay an investor more than $1.2 million in damages related to losses in promissory notes issued by Medical Capital Holdings Inc., which entered receivership in 2009. The sum includes an unusual $250,000 in punitive damages.

The case, decided on Dec. 31, was the first among dozens of arbitration cases against Securities America involving its sale of Medical Capital notes to proceed to an arbitration hearing, a Securities America spokeswoman confirmed. Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net worth requirements.

Josephine Wayman, a California-based investor, filed the case against Securities America and one of its brokers, Randall R. Talbott of Newport Beach, Calif., in late 2009, alleging misrepresentation and fraud, among other things, according to the ruling. She sought $729,000 plus interest, legal fees, punitive damages and other relief. The panel ruled that Securities America and Talbott as jointly responsible for more than $905,000 of the total award, including $734,000 in damages plus interest, $111,465 in legal fees and $59,883 in expert witness fees, according to the award. The firm and Talbott must also pay an additional $17,000 in hearing fees, which are typically split between the parties in most cases.

Securities America, however, is solely responsible for the $250,000 in punitive damages. The panel didn't fully explain its decision, as is customary in arbitration rulings. One paragraph of the ruling, however, suggests that issues related to witnesses and the discovery phase of the proceeding, when parties exchange information, may have prompted the punitive damages.

"I would bet they were directly attributable to Securities America playing hide the ball with witnesses or discovery. That's extraordinarily rare to put that sort of disclosure in an award," said Andrew Stoltmann, a Chicago-based securities lawyer who has represented investors in other Medical Capital cases.

The award against the broker, Talbott, is also unusual, said Marc Dobin, a securities lawyer in Jupiter, Fla., who represents brokers in arbitration cases. Investors don't typically name the brokers because "there's not a lot of benefit in it," he said. The panel's decision to hold Talbott jointly responsible "creates interesting issues" for cases involving the Medical Capital notes. Cases involving specific products, such as private placements or limited partnership shares, often focus on certain management decisions regarding due diligence efforts and disclosures in offering documents, he said.

A public record for Talbott, who joined Securities America in 2003, discloses 11 arbitration cases involving his alleged role in the sale of Medical Capital notes and other private placements. Talbott isn't a party in most of the actions, according to his record, but Finra rules require the disclosure whenever the broker's name is mentioned in the arbitration document.

Talbott, in a comment that appears in his public filing, called the allegations of Wayman, the investor, "completely without merit." The products, he wrote, "were suitable based on her risk tolerance and objectives." He didn't return a call to Dow Jones Newswires requesting comment.

A Securities America spokeswoman said the award was "based on the specific facts" of Wayman's case and that it disagrees with the outcome. The firm "does not believe it acted inappropriately in the sale of these investments," she said.

Massachusetts Secretary of the Commonwealth William F. Galvin filed an enforcement case against Securities America in January 2010, alleging the firm knowingly marketed and sold the Medical Capital as secured, fixed-income type investments to unsophisticated customers who didn't have experience with high-risk products. The Securities and Exchange Commission charged Medical Capital Holdings with securities fraud in a 2009 civil action, for its sale of $77 million in private securities.

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