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Commitments and Contingencies
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3 Months Ended |
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Mar. 31, 2013
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies
Litigation and Regulatory Matters
Between December 2010 and June 2012, eight arbitration claims and three lawsuits were filed against Triad by former clients asserting that a former registered representative of Triad sold them, not through Triad, guaranteed investments that were fraudulent. The clients asserted, among other claims, claims for fraud, theft, conversion, securities law violations, failure to supervise, respondeat superior, and breach of fiduciary and other duties. The last pending matters were settled in March 2013; amounts paid by Triad in connection with these settlements were not material.
In August 2011 and May 2012, several former clients of Investacorp filed arbitration claims asserting, among other things, that a former registered representative of Investacorp invested the clients’ funds in unsuitable variable annuities; further, the claims assert that the former registered representative sold the clients, not through Investacorp, investments in fraudulent alternative business ventures. On August 10, 2012, the parties entered into a settlement agreement with one former client resolving all claims; the settlement amount paid by Investacorp was not material. The remaining claimants seek compensatory damages totaling $242. The Company believes the remaining claims are without merit and intends to vigorously defend against them.
In October 2011, a suit was filed in the U.S. District Court for the District of Delaware by James Zazzali, as Trustee for the DBSI Private Actions Trust, against 50 firms, including two of our subsidiaries, and their purported parent corporations, alleging liability for purported fraud in the marketing and sale of DBSI securities. The plaintiff has alleged, among other things, that the defendants failed to conduct adequate due diligence and violated securities laws. The plaintiff seeks an unspecified amount of compensatory damages as well as other relief. Defendants' motions to dismiss the complaint are currently pending. The Company believes the claims are without merit and intends to vigorously defend against them.
In December 2011, a purported class action suit was filed in the U.S. District Court for the Southern District of Florida against FriendFinder Networks, Inc. (“FriendFinder”), various individuals, Ladenburg and another broker-dealer as underwriters for the May 11, 2011 FriendFinder initial public offering. The complaint alleges that the defendants, including Ladenburg, are liable for violations of federal securities laws. On November 15, 2012, the court issued an order granting the defendants’ motion to dismiss, with leave to replead on specified grounds; the plaintiff’s motion for reconsideration of that order is currently pending. The Company believes that the claims are without merit and intends to vigorously defend against them.
In December 2011, a purported class action suit was filed in the U.S. District Court for the Western District of Washington against HQ Sustainable Maritime Industries, Inc. (“HQS”), various individuals, Ladenburg and another broker-dealer as underwriters of 2009 and 2010 offerings of HQS common stock. The complaint alleged that the defendants, including Ladenburg, are liable for violations of federal securities laws. The complaint sought unspecified damages. The parties’ settlement agreement, with no contribution from Ladenburg, was approved by the court on March 21, 2013.
In December 2012, a purported class action suit was filed in the Superior Court of California for San Mateo County against Worldwide Energy & Manufacturing, Inc. (“WEMU”), certain individuals, and Ladenburg as placement agent for a 2010 offering of WEMU securities. The complaint alleges that the defendants, including Ladenburg, are liable for violations of state securities laws relating to purported failure to disclose certain agreements. An amended complaint was filed in February 2013; the amount of damages sought is unspecified. The Company believes the claims are without merit and intends to vigorously defend against them.
In August 2012, a former client of Triad filed an arbitration claim concerning the suitability of five investments in tenant-in-common interests purchased through Section 1031 tax-deferred exchanges; the claim seeks compensatory damages equal to the purported total investment loss of approximately $3,900. The client has asserted claims for violations of federal and state securities laws, negligence, breach of contract, fraud, breach of fiduciary duty, negligence, and gross negligence. The Company believes the claims are without merit and intends to vigorously defend against them.
In February 2012, a former client of Securities America filed an arbitration claim asserting lack of suitability, excessive fees, misrepresentation, fraud, and failure to supervise concerning investments purchased in the client’s account. The claim sought $941 in damages. On April 10, 2013, the claim was settled; the settlement amount paid by Securities America was not material.
In June 2012, two former Securities America clients filed an arbitration claim asserting lack of suitability in connection with their investments in two real estate investment trusts. The claim seeks $800 in damages. The Company believes the claims are without merit and intends to vigorously defend against them.
In July 2012, eight former Securities America clients filed an arbitration claim asserting lack of suitability, misrepresentation, failure to disclose, breach of fiduciary duty and negligent supervision, in connection with their investments in several real estate investment trusts. The claim seeks $3,800 in 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. Following investigation of the matter, the Company implemented corrective actions with respect to the net capital issue, as well as other issues that arose during the course of the investigation. These corrective actions included reporting the deficiency to governmental and self-regulatory organizations, filing amended FOCUS reports 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. Moreover, FINRA is reviewing the adequacy of the subsidiary's supervisory system and written supervisory procedures for subsequent periods, especially as they concern correspondence review, internal inspections, consolidated report disclosures, supervisory controls and protection of consumer personal and financial information. 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 July 2009, the SEC instituted actions against two issuers of private placement interests (Medical Capital Holding, Inc./Medical Capital Corporation and affiliated corporations and Provident Shale Royalties, LLC and affiliated corporations) sold by Securities America. This resulted in several lawsuits, regulatory inquiries, state administrative complaints and a significant number of FINRA arbitrations against Securities America and affiliated parties. These actions and arbitrations generally allege violations of state and/or federal securities laws in connection with Securities America’s sales of these private placement interests. Substantially all of these actions were settled prior to the Company’s acquisition of Securities America. One customer claim regarding these matters is currently pending. Ameriprise Financial, Inc., the former owner of Securities America, has agreed to indemnify the Company for any loss related to all pending and future actions involving the sale of these interests.
In April 2013, the Massachusetts Securities Division provided Securities America with an offer of settlement relating to a 2013 investigation into sales of certain non-traded REIT securities to Securities America clients. The Massachusetts Securities Division asserted that, since 2005, 16 transactions, representing $915 in sales, to Massachusetts residents exceeded concentration thresholds contained in Massachusetts securities laws. The Massachusetts Securities Division seeks an offer of rescission to the 16 clients and to other Massachusetts clients whose purchases of other non-traded REIT securities were allegedly in violation of Massachusetts securities laws, together with an unspecified fine and other relief. Securities America is in discussions with the Massachusetts Securities Division regarding this matter and believes that it has various meritorious defenses. The Company has not yet determined the scope of potential liability.
In the ordinary course of business, in addition to the above disclosed matters, 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 $27 at March 31, 2013 and $27 at December 31, 2012 for certain pending 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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