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Commitments and Contingencies
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6 Months Ended | ||
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Jun. 30, 2011
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| Commitments and Contingencies |
Litigation and Regulatory Matters
In
May 2003, a suit was filed in the U.S. District Court for the
Southern District of New York by Sedona Corporation against
Ladenburg, former employees of Ladenburg and a number of other
firms and individuals. The plaintiff alleged, among other things,
that certain defendants (not Ladenburg) purchased convertible
securities from plaintiff and then allegedly manipulated the market
to obtain an increased number of shares from the conversion of
those securities. Ladenburg acted as placement agent and not as
principal in those transactions. Plaintiff’s original
complaint alleged that Ladenburg and the other defendants violated
federal securities laws and various state laws. In August 2005,
Ladenburg’s motion to dismiss was granted in part and denied
in part. On May 27, 2009, the Court granted in part
and denied in part motions to dismiss the Second Amended Complaint,
and granted plaintiff leave to replead. On July 9, 2009,
plaintiff filed its Third Amended Complaint, which contains no
claims under the federal securities laws, leaving only common law
claims; the plaintiff seeks compensatory damages from the
defendants of at least $660,000 and punitive damages of
$400,000. Ladenburg’s motion to dismiss the Third
Amended Complaint, filed on August 17, 2009, is currently
pending. The Company believes the plaintiff’s claims
are without merit and intends to vigorously defend against
them.
In
July 2004, a suit was filed in the U.S. District Court for the
Eastern District of Arkansas by Pet Quarters, Inc. against
Ladenburg, a former employee of Ladenburg and a number of other
firms and individuals. The plaintiff alleged, among other things,
that certain defendants (not Ladenburg) purchased convertible
securities from the plaintiff and then allegedly manipulated the
market to obtain an increased number of shares from the conversion
of those securities. Ladenburg acted as placement agent and not as
principal in those transactions. Plaintiff has alleged that
Ladenburg and the other defendants violated federal securities laws
and various state laws. The plaintiff seeks compensatory damages
from the defendants of at least $400,000. In April 2006,
Ladenburg’s motion to dismiss was granted in part and denied
in part. On July 23, 2010, the plaintiff dismissed its claims
against all defendants other than Ladenburg and the former
Ladenburg employee. In March 2011, the Court denied
Ladenburg’s motion for reconsideration of the motion to
dismiss as to the remaining claims. The Company believes
that the plaintiff’s claims are without merit and intends to
vigorously defend against them.
In
July 2008, a suit was filed by BankAtlantic and BankAtlantic
Bancorp, Inc. against Ladenburg and a former Ladenburg research
analyst. The plaintiffs alleged, among other things, that research
reports issued by defendants were false and defamatory, and that
defendants were liable for defamation per se and negligence; the
amount of the alleged damages was unspecified. In February 2010,
the plaintiffs entered into a settlement agreement with Ladenburg
resolving all claims against Ladenburg. On July 1, 2010,
the plaintiffs and the former research analyst dismissed the
remaining claims with prejudice. The former research
analyst has commenced an arbitration claim against Ladenburg, the
Company, and two Company directors for, among other things,
indemnification and breach of contract, seeking reimbursement of
expenses and other purported damages incurred in defending the
suit. The Company believes the claims are without merit
and intends to vigorously defend against them.
In
January 2011, two former clients of Triad filed an arbitration
claim concerning their U.S Internal Revenue Code Section 1031
like-kind exchange investments made in 2006. The customers have
asserted claims for breach of contract, constructive fraud, breach
of fiduciary duty, unsuitability, and failure to supervise, and are
seeking approximately $1,800 in compensatory
damages. The Company believes the claims are without
merit and intends to vigorously defend against them.
In
January 2011, two former clients of Triad filed an arbitration
claim concerning variable annuities purchased in 2008. The
customers have asserted claims for breach of contract, fraud,
negligence, misrepresentation, breach of fiduciary duty,
unsuitability, negligent supervision, and violations of state
securities statutes, and they are seeking approximately $442 in
compensatory damages. The Company believes the claims
are without merit and intends to vigorously defend against
them.
Eight
arbitration claims have been filed against Triad in 2010 and 2011
by customers asserting that a former registered representative of
Triad sold them, not through Triad, guaranteed investments that
were fraudulent. The customers have asserted, among other claims,
claims for fraud, negligence, theft, conversion, §10(b)
violations, failure to supervise, respondeat superior, and breach
of fiduciary and other duties, and are seeking a total of $660 in
compensatory damages. The Company believes the claims are without
merit and intends to vigorously defend against them.
In
March 2011, a former client of Triad filed an arbitration claim
concerning unit investment trusts and other investments purchased
in the customer’s account. The customer has asserted claims
for negligence, breach of fiduciary duty, unsuitability, negligent
supervision, and violations of state securities statutes, and is
seeking an unspecified amount of compensatory
damages. The Company believes the claims are without
merit and intends to vigorously defend against them.
During
the fourth quarter of 2009, one of the Company’s
broker-dealer subsidiaries had a short-term net-capital deficiency,
discovered during a routine regulatory review, which was not
disclosed properly on a monthly FOCUS report. The Company has
taken corrective actions, including reporting the deficiency to
governmental and self-regulatory organizations, filing amended
FOCUS reports for historical periods, reviewing net capital
compliance for historical periods, implementing new procedures to
monitor net capital compliance, and terminating the employees who
had primary responsibility for monitoring and reporting its net
capital. The Company is unable to determine whether and to
what extent any governmental and/or self-regulatory organizations
may seek to discipline the subsidiary concerning this matter.
Such disciplinary actions could include fines, a suspension of such
subsidiary’s operations and/or rescission of revenues
relating to the period of non-compliance, any of which could have a
material adverse effect on the subsidiary's results of operations
and financial condition.
In
the ordinary course of business, the Company’s subsidiaries
are defendants in litigation and arbitration proceedings and may be
subject to unasserted claims or arbitrations primarily in
connection with their activities as securities broker-dealers or as
a result of services provided in connection with securities
offerings. Such litigation and claims may involve substantial or
indeterminate amounts and are in varying stages of legal
proceedings. When the Company believes that it is probable that a
liability has been incurred and the amount of loss can be
reasonably estimated, the Company includes an estimate of such
amount in accounts payable and accrued liabilities.
Upon
final resolution, amounts payable may differ materially from
amounts accrued. The Company had accrued liabilities in the amount
of approximately $68 at June 30, 2011 and $286 at December 31,
2010 for these matters. For other pending matters, the Company is
unable to estimate a range of possible loss; however, in the
opinion of management, after consultation with counsel, the
ultimate resolution of these matters should not have a material
adverse effect on the Company’s consolidated financial
position, results of operations or liquidity.
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