Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.20.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
 Commitments and Contingencies

Operating Leases

The Company and certain of its subsidiaries are obligated under several non-cancelable lease agreements for office space, expiring in various years through January 2030. Certain leases have provisions for escalation based on specified increases in costs incurred by the landlord. The Company is a sublessor to third parties for a portion of its office space as described below. The subleases expire at various dates through August 2020. As of December 31, 2019, minimum lease payments (net of lease abatement and exclusive of escalation charges) and sublease rentals are as follows:

Year Ending December 31,
 
Lease Commitments
 
Sublease Rentals
 
Net
2020
 
$
8,341

 
$
28

 
$
8,313

2021
 
6,036

 

 
6,036

2022
 
5,372

 

 
5,372

2023
 
3,954

 

 
3,954

2024
 
3,574

 

 
3,574

Thereafter
 
12,176

 

 
12,176

Total 
 
$
39,453

 
$
28

 
$
39,425




In connection with an office lease entered into in March 2016, Securities America has exercised an option to lease additional office space, for 12 years and would require the payment of annual rent of $1,707 plus operating expenses of $537, subject to certain adjustments. The annual rent plus operating expenses for the first year of the initial term of the lease is $2,244, payable in monthly installments of $187. The Company currently expects that this lease would commence in 2020 upon completion of the construction. Such estimated rent amounts are not included in the total minimum lease payments above.

Litigation and Regulatory Matters

In January 2020, a purported class action shareholder complaint was filed against the Company, its former directors, Advisor Group Holdings, Inc. (“Advisor Group”), Harvest Merger Sub, Inc. (“Merger Sub”) and AG Artemis Holdings, LP (“Artemis”) in Miami-Dade County, Florida Circuit Court. The complaint alleges that the director defendants received benefits from the Company’s merger with Merger Sub not shared by the plaintiff and class members, agreed to an unfair merger price and solicited shareholder approval through allegedly materially misleading proxy materials and that the director defendants therefore breached their fiduciary duties. The complaint also alleges Advisor Group, Merger Sub and Artemis aided and abetted the fiduciary breaches alleged in the complaint. The complaint seeks an unspecified amount of compensatory damages and the disgorgement by the defendants of all unique consideration received in the merger. The Company intends to vigorously defend against these claims.

In December 2019, five purported class action shareholder actions were filed against the Company and its former directors: three in the United States District Court for the Southern District of New York, one in the United States District Court for the Eastern District of New York, and one in the United States District Court for the District of Delaware. The complaints allege, among other former things, that the defendants violated federal securities laws by disseminating a preliminary proxy statement that omitted or misrepresented material information concerning: management projections, valuation analyses, the sales process, and the potential conflicts of interest faced by the members of the Board and the executive officers of the Company. Each complaint seeks, among other things, an order preliminarily and permanently enjoining the merge until the allegedly omitted information is disclosed, rescission of the merger or an award of damages. The Company intends to vigorously defend against these claims.

In December 2014 and January 2015, two purported class action suits were filed in the United States District Court for the Southern District of New York against American Realty Capital Partners, Inc. (“ARCP”), certain affiliated entities and individuals, ARCP’s auditing firm, and the underwriters of ARCP’s May 2014 $1,656,000 common stock offering (“May 2014 Offering”) and three prior note offerings.

A consolidated complaint was filed in September 2016. Ladenburg was named as a defendant as one of 17 underwriters of the May 2014 Offering and as one of eight underwriters of ARCP’s July 2013 offering of $300,000 in convertible notes. The complaint alleged, among other things, that the offering materials were misleading based on financial reporting of expenses, improperly-calculated AFFO (adjusted funds from operations), and false and misleading Sarbanes-Oxley certifications, including statements as to ARCP’s internal controls, and that the underwriters are liable for violations of federal securities laws. The plaintiffs sought an unspecified amount of compensatory damages, as well as other relief. In June 2016, the court denied the underwriters’ motions to dismiss the complaint. In August 2017, the court granted the plaintiffs' motion for class certification. In September 2019, the parties entered into a stipulation of settlement of all claims, which provides for no contribution from the underwriters, including Ladenburg. In January 2020, the court issued an order approving the parties' settlement.

In November 2015, two purported class action complaints were filed in the Circuit Court for Morgan County, Tennessee (Ninth Judicial District) against Miller Energy Resources, Inc. (“Miller”), officers, directors, auditors and nine firms that underwrote six securities offerings in 2013 and 2014, which offerings raised approximately $151,000. Ladenburg was one of the underwriters of two of the offerings. The complaints allege, among other things, that the offering materials were misleading based on the purportedly overstated valuation of certain assets, and that the underwriters are liable for violations of federal securities laws. Also, a purported class action was filed in the United States District Court for the Eastern District of Tennessee in May 2016 alleging similar claims. The plaintiffs seek an unspecified amount of compensatory damages, as well as other relief. In December 2015 the defendants removed the complaints to the federal court in Tennessee; in November 2016, the cases were consolidated. In August 2017, the court granted in part and denied in part the underwriters' motion to dismiss the complaint. In December 2019, the court issued an order remanding to state court the two suits that were initially filed in state court. Ladenburg intends to vigorously defend against these claims.

In January 2016, an amended complaint was filed in the United States District Court for the Southern District of Texas against Plains All American Pipeline, L.P. and related entities as well as their officers and directors. The amended complaint added Ladenburg and other underwriters of securities offerings in 2013 and 2014 that in the aggregate raised approximately $2,900,000 as defendants to the purported class action. Ladenburg was one of the underwriters of the October 2013 initial public offering. The complaint alleged, among other things, that the offering materials were misleading based on representations concerning the maintenance and integrity of the issuer’s pipelines, and that the underwriters are liable for violations of federal securities laws. In April 2018, the court granted the defendants' motions to dismiss the second amended complaint with prejudice and entered final judgment for the defendants. In July 209 the U.S. Court of Appeals for the Fifth Circuit affirmed the dismissal of the second amended complaint.

In August and September 2019, five purported class action suits were filed, three in the Palm Beach County. Florida Circuit Court and two in the United States District Court for the Southern District of Florida against Greenlane Holdings, Inc. ("Greenlane"), as well as its officers, directors, and five firms that underwrote Greenlane's initial public offering in April 2019, which raised approximately $110,000. Ladenburg was one of the underwriters. The complaints allege, among other things, that the offering materials were misleading based on the failures to disclose risks that Greenlane, a large distributor of JUUL electronic cigarette products, faces from initiatives in several large cities to limit or ban the manufacture and/or sale of electronic cigarette products, and that the underwriters are liable for violations of federal securities laws. The plaintiffs seek an unspecified amount of compensatory damages, as well as other relief. The three state court suits have been consolidated. Motions to dismiss these state court suits were filed in February 2020. The two federal court suits were also consolidated, and an amended federal complaint was filed in March 2020 that excludes the underwriter defendants. Ladenburg intends to vigorously defend against these claims.

SEC examination reports provided to Triad and Securities America Advisors, Inc. in May and August 2016, respectively, asserted that the firms had acted inconsistently with their fiduciary duties (including the requirement to seek best execution) in recommending and selecting mutual fund share classes that paid 12b-1 fees where lower cost share classes also were available in those same funds. The SEC also asserted that the firms’ disclosures of potential conflicts of interest and compensation related to the mutual fund share classes that paid 12b-1 fees were insufficient. Triad has revised its disclosures and completed restitution to its affected clients in 2016. On April 6, 2018, the SEC issued an order against Securities America Advisors on consent that includes a cease and desist order and imposes remedial sanctions of disgorgement, prejudgment interest, and a fine; the combined total amount is $5,828, which has previously been reserved. In October 2018, Securities America Advisors received approval of its plan for distribution of the funds. Securities America Advisors has completed its distribution of funds pursuant to the terms of the order.

In February 2018, the SEC announced a Share Class Selection Disclosure Initiative (“Initiative”) to encourage registered investment advisory firms to self-report failures to disclose conflicts of interest to clients concerning the selection of mutual fund share classes that paid fees pursuant to Rule 12b-1 of the Investment Company Act of 1940 for the period 2014-2016.  Under the Initiative, the SEC requires self-reporting firms, among other things, to disgorge to clients the 12b-1 fees received during the relevant period when lower-cost share classes were available. Three of the Company's investment advisory subsidiaries determined to self-report under the Initiative. On March 11, 2019, the SEC issued orders on consent against SSN Advisory, Inc. and Investacorp Advisory Services, Inc. that include cease and desist orders and impose remedial sanctions of disgorgement and prejudgment interest; the combined total amount is $2,149, which has previously been reserved. The matter was closed as to the third investment advisory subsidiary without formal action. SSN Advisory, Inc. and Investacorp Advisory Services, Inc. are paying out the funds pursuant to the terms of the orders.

A complaint was filed in the United States District Court for the Southern District of New York in February 2019, by customers asserting that a former registered representative of Securities America defrauded them through, among other things, the use of improper wire transfers and false account documents. The customers asserted, among other claims, claims for fraud, negligence and other duties. Securities America successfully moved to compel arbitration of the complaint, which asserts a total of $18,000 in compensatory damages. Securities America intends to vigorously defend against the claim.

From July 2019 to March 2020, thirteen customers filed arbitration claims against Triad, asserting, among other things, that Triad was negligent in permitting its registered representatives to solicit investments in private placements offered by GPB Capital Holdings, because of purported excessive risk and unsuitability. The customers assert, among other claims, claims for negligence, breach of contract, failure to supervise, and breach of fiduciary duty. Total compensatory damages sought for investments in GPB Capital Holdings that occurred at Triad are approximately $2,475. Also, a purported class action lawsuit was filed in federal court in Texas in October 2019 against GPB Capital Holdings, and a number of other defendants including its founder, distributing broker-dealer, auditor, fund administrator and 76 broker-dealers that offered its funds, including Triad. The lawsuit alleges, among other things, fraud, breach of fiduciary duty, negligence, and violations of the Texas Securities Act in connection with sales of private placements offered by GPB Capital Holdings. Damages are unspecified. Motions to dismiss the lawsuit are currently pending. Triad intends to vigorously defend against these matters.

In the ordinary course of business, in addition to the above disclosed matters, the Company's subsidiaries are defendants in other litigation, arbitration and regulatory proceedings and may be subject to unasserted claims 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.

The Company had accrued liabilities in the amount of approximately $7,817 at December 31, 2019 and $9,869 at December 31, 2018 for certain pending matters which are included in accounts payable and accrued liabilities. Amounts accrued are based on judgment and currently available information and involve a variety of factors, including, but not limited to, the type and nature of the litigation, claim or proceeding, the progress of the matter, advice of counsel, available defenses, potential recoveries from other parties, experience in similar cases or proceedings, as well as assessment of matters, including settlements, involving other defendants in similar or related cases or proceedings. For other pending matters, the Company was unable to estimate a range of possible loss; however, in the opinion of management, after consultation with counsel, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.