Ameriprise and LPL Financial are both facing more lawsuits related to their money laundering programs, while a New York-based law firm is looking into the firms' money laundering practices with the help of a former SEC commissioner .
Ameriprise is facing two lawsuits filed this week in Minnesota federal court. California resident Mark Frey and New York resident Mary Bender filed the class action, alleging Ameriprise repeatedly breached its duties to customers in managing money laundering programs.
Like many firms, Ameriprise has programs that automatically transfer (or wipe) remaining cash balances from eligible customer cash (including proceeds from securities transactions and cash deposits) to interest-bearing deposit accounts. These are usually done through agreements with affiliated banks, and the total compensation depends on the federal funds rate.
When interest rates are low, this normally doesn't matter, but starting in 2022, the Federal Reserve raised them dramatically. In his lawsuit, Frey said this raised bank yields, which should have put brokerages in a position to negotiate higher rates of return for clients.
“Unfortunately, this has not been the case with some firms like Ameriprise,” the complaint said. “Instead, Ameriprise sets up write-off deposits with affiliated banks with which it negotiates to pay less than reasonable interest rates to customers and more money to itself.”
According to Frey, the interest rates paid to Ameriprise customers with money laundering deposits were “small,” ranging from 0.0% to about 0.3%, significantly lower than the current target range of the Federal Funds Rate of 5.25 % to 5.50%. However, Ameriprise's net interest income from the programs was significant, reaching $3.07 billion between June 2023 and June 2024, according to Frey.
For Frey, Ameriprise profited by depositing cash in affiliated banks, paying little interest to customers and more to Ameriprise (an arrangement Frey insists Ameirprise negotiated).
“Had Ameriprise charged reasonable fees to its clients like other brokerages, however, it would have earned less,” the complaint said. “Ameriprise put its own financial interests ahead of those of its customers, instead being able to line its own pockets with massive profits.”
Bender's complaint is similar in many respects. He accuses Ameriprise Enterprise Investment Services, which is responsible for wiping out the excess money in write-off deposits, of being “an agent that serves two masters”—namely, the firm's clients and the firm itself (including its affiliates such as Ameriprise Bank).
“(Bender) alleges that while the fee AEIS kept for itself from unrelated participating banks was unreasonable, contrary to industry practice rules — especially when it had to do very little to earn that money — those amounts were much more lower than what Ameriprise earned by directing customers' money to its affiliated bank, where defendants could earn significantly more money than what defendants received from unaffiliated participating banks,” Bender's complaint said.
However, an Ameriprise spokesperson maintained that the firm's money laundering programs were “intended for cash on the go, not as an investment option for significant cash balances over long periods.”
“Our programs comply with legal and regulatory requirements,” the spokesperson said.
LPL's practices are under review
Hieu Vu filed her class action lawsuit against LPL Financial in California federal court earlier this week. The allegations mirror those of multiple lawsuits LPL faces in connection with its sweepstakes deposit programs. In the complaint, Vu alleges that LPL breached its fiduciary duty to its advisory clients.
The language in the LPL complaint is similar and, in many points, consistent with the writing in Frey's complaint. Both Frey and Vu are represented by, among others, Rosemary Rivas and Rosanne Mah at Gibbs Law Group (Frey is also represented by Brian Johnson of that firm and attorneys from Berger Montague).
An LPL spokesman said he would not comment on specific pending litigation, but noted that other firms in the industry were facing similar lawsuits and the company intends to defend itself “vigorously.”
“We also offer investment options suitable for a long-term horizon, such as money market funds, CDs and fixed income funds,” the spokesperson said. “This flexibility allows our clients to tailor their investment strategies according to their risk tolerance and financial goals.”
There have been a number of money laundering-related class actions against some of the industry's largest brokerage firms, including Wells Fargo as well as naming previous suits LPL and Ameriprise as a defendant.
Recently, Morgan Stanley also revealed that the SEC has been looking into wire money laundering programs since April. Wells Fargo disclosed its own regulatory investigation last year and, in its most recent quarterly filing, that it was in “resolution discussions” with the commission.
Wells Fargo also revealed it would raise interest rates on its cash-cleaning programs this year (joining Bank of America and Morgan Stanley in reevaluating their cash-cleaning programs). However, LPL CEO Dan Arnold said during his most recent quarterly earnings call that there were “no plans” to reassess its write-off rates.
Moody's also recently warned that ongoing investigations into the firms' money laundering policies could harm their credit ratings “because it could reduce their margin-based earnings on customers' uninvested cash balances and increase legal and regulatory compliance costs”.
According to Max Schatzow, a partner with RIA Lawyers, rising interest rates are the main driver behind the glut of class action complaints filed in recent months. When interest rates were low, there would be little appetite to consider cleanup programs or rates, and lawyers were unwilling to take a chance on such a lawsuit.
“But with rates going up, I think there are people who are willing to argue that their broker/dealer may not have fulfilled their duty to customers,” he said.
As scrutiny of cash laundering deposits mounts, New York-based firm Bernstein Litowitz Berger & Grossmann is launching a “Cash Laundering Task Force” with the help of former SEC Commissioner Robert J. Jackson Jr. , who was nominated by President Donald Trump in 2017 (he is currently a professor at NYU Law School).
The task force is investigating Wells Fargo, Ameriprise, LPL and E*Trade (among other firms).
In a statement about the new task force, Jackson said banks and brokerages had “shortchanged their retail customers” when they failed to pay fair interest rates on write-off accounts.
“Our nation's largest financial institutions should not be profiting at the expense of their customers — essentially picking customers' pockets in order to line their own pockets,” he said. “The SEC is doing its part to expose and put an end to this activity, but retail customers must take action to recover the money they are owed.”