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Commitments and Contingencies
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9 Months Ended |
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Sep. 30, 2013
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies
Litigation and Regulatory Matters
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. On June 20, 2013, the plaintiff filed its second amended complaint, alleging that the defendants, including Ladenburg, are liable for violations of federal securities laws. The amended complaint does not specify the amount of damages sought. The defendants' motion to dismiss the second amended complaint is currently pending. On September 17, 2013, FriendFinder filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in federal bankruptcy court in Delaware. As a result, action in the case has been stayed. The Company believes that the claims are without merit and intends to vigorously defend against them.
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, and does not specify the amount of damages sought. On April 26, 2013, Ladenburg filed a demurrer, which is pending. On July 5, 2013, WEMU filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in federal bankruptcy court in Colorado. On July 9, 2013, Ladenburg removed the purported class action suit to the U.S. District Court for the Northern District of California; cross-motions to remand, transfer and/or stay the suit are currently pending. 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 claimant seeks compensatory damages equal to the purported total investment loss of approximately $3,900 and other relief. 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. Five of the claimants entered into settlement agreements resolving all of their claims; the settlement amounts paid by Securities America in connection with these settlements were not material. The arbitration panel dismissed one claim on statute of limitations grounds; the two remaining claims, which seek a total of $2,318 in compensatory damages and other relief, are currently pending. The Company believes the pending 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's review included 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 subsidiary is currently in discussions with FINRA about whether and to what extent FINRA may seek to discipline the subsidiary and any of its current employees 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.
On May 22, 2013, the Massachusetts Securities Division issued a consent order with Securities America relating to its investigation into sales of non-traded REIT securities to Securities America clients that exceeded concentration thresholds proscribed in Massachusetts securities laws. Pursuant to the consent order, Securities America offered rescission to its Massachusetts clients whose purchases of non-traded REIT securities were allegedly in violation of Massachusetts securities laws, paid a $150 fine, and agreed to certain other relief. As of November 4, 2013, a total of 44 clients had exercised rescission rights; total payments to those clients will be $2,578. Values in the re-sale market for the tendered securities may fluctuate. The loss recorded as of September 30, 2013 associated with the clients who had exercised rescission rights through November 4, 2013, after giving effect to the estimated fair value of the tendered securities at September 30, 2013, was not material. The remaining 101 clients’ offers of rescission will expire, if not accepted, during the fourth quarter of 2013. At this time, the Company is unable to determine the scope of potential liability that Securities America will incur as a result of the offers of rescission.
In connection with a 2010 examination of a Securities America branch office, FINRA has been reviewing supervisory procedures surrounding the use of certain consolidated reports at Securities America. Securities America is currently in discussions with FINRA about whether and to what extent FINRA may seek to discipline it concerning this matter, and believes that it has various meritorious defenses. The Company is unable to determine the scope of potential liability at this time.
In June 2013, a former client of Securities America filed an arbitration claim concerning the suitability of investments in three tenant-in-common interests purchased through Section 1031 tax-deferred exchanges; the claimant seeks compensatory damages equal to the purported total investment loss of approximately $2,164 and other relief. The Company believes the claims are without merit and intends to vigorously defend against them.
In June and August 2013, three former clients of Triad filed arbitration claims concerning the suitability of investments in tenant-in-common interests purchased through Section 1031 tax-deferred exchanges. The claimants seek compensatory damages equal to the purported total investment losses of approximately $1,100, $796, and $2,100, respectively, and other relief. The Company believes the claims are without merit and intends to vigorously defend against them.
In October 2013, the Pennsylvania Department of Banking and Securities requested that Securities America provide information concerning purchases of non-traded REIT securities by Pennsylvania residents since 2007. Securities America is complying with the request.
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, adjusted for any expected insurance recovery.
Upon final resolution, amounts payable may differ materially from amounts accrued. The Company had accrued liabilities in the amount of approximately $1,729 at September 30, 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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