Former Ladenburg Chair Frost Sues to Halt Advisor Group Merger
Phillip Frost, who a year ago sold most of his holdings in Ladenburg Thalmann Financial Services for $130.2 million, has filed a lawsuit to rescind the transaction and to enjoin the independent broker-dealer holding company from proceeding with its plan to merge with The Advisor Group.
Frost and a trust company he owns filed the complaint last Friday, seeking, “among other things, monetary damages, rescission of the transaction in which the plaintiffs sold a substantial portion of their shares of common stock… and an injunction against the merger,” according to a proxy statement that Ladenburg filed Thursday announcing a shareholder meeting January 30, 2020, to approve the Advisor Group deal.
“The Company believes this lawsuit is without merit and intends to defend vigorously against these allegations,” the proxy statement said, noting that Advisor Group’s offer “substantially exceeded” three others it received.
The suit is at least the fifth filed this month to halt the deal.
The lawsuits—including three from purported individual shareholders filed in federal court in the Southern District of New York and a fourth putative class-action lawsuit in the Eastern District of New York—allege that Ladenburg’s preliminary proxy statement materially misstated and omitted information about the merger. Management included misleading projections, and left out information about valuation analyses to support a merger-price fairness opinion issued by Jefferies LLC, as well as potential conflicts of interest faced by the members of the Board and executive officers, the lawsuits assert.
Ladenburg and its directors have not yet responded to the complaints, but believes they are “without merit” and do “not intend to update or otherwise revise the Management Projections to reflect circumstances existing after the date they were prepared or to reflect the occurrence of future events,” the proxy statement said.
Frost sold almost 51 million of his shares to Ladenburg last December, after he agreed to pay a $5.5 million fine to the Securities and Exchange Commission and accept a ban on trading penny stocks. Frost, who was 82 at the time, also resigned last fall as Ladenburg’s non-executive chairman. The SEC had charged him and nine others in September 2018 with fraud over an alleged pump-and-dump stock scheme.
Spokespeople at OPKO Health Inc., a biopharmaceutical and diagnostics company where Frost is chairman and chief executive, said they could not comment on Frost’s legal filing because it “is a personal matter for Dr. Frost.”
In an unrelated development, Ladenburg’s filing on Thursday said it “recently” learned from private-equity-controlled Advisor Group that financial advisors and certain other employees will receive ”an opportunity to acquire equity interests” in the acquiring firm. The proxy did not elaborate on the share purchase price or exchange ratio that Advisor Group may offer, and said that none had been made to employees or financial advisors as of the date of the proxy statement.
In an earlier filing with the SEC, Ladenburg said it will not offer advisors significant retention bonuses or other “stay” arrangements.
Ladenburg works with about 4,400 advisors at Securities America, Triad Advisors, Investacorp, KMS Financial Services and Securities Service Network, but did not say how many have interests in the publicly traded firm. Advisor Group has about 7,000 advisors at its four independent broker-dealer units.
Ladenburg’s directors and investment firm Vector Group own about 21% of its publicly traded outstanding shares. Ladenburg Chairman, President and Chief Executive Richard Lampen and Vice Chairman Howard Lorber are Vector’s senior executives.
“You should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours,” the proxy statement said, noting that they will be able to exercise unvested stock options and receive a price reflecting the premium over the exercise price that Advisor Group is offering.
Shares of Ladenburg have soared more than 75% from $2.01 on October 28, when Bloomberg News published a story discussing the firm’s likely sale. They were changing hands at $3.48 a share in noontime trading on December 26.