Former Ladenburg Thalmann chairman Phillip Frost has filed a lawsuit that, if successful, would prevent the holding company, which operates a network of five independent broker-dealers, from a planned merger with Advisor Group.
On December 20, Frost and Frost Nevada Investments Trust filed a complaint against Ladenburg Thalmann and its board, according to a proxy statement filed with the SEC by Ladenburg Thalmann on December 26 announcing a shareholder meeting on Jan. 30, 2020 to approve the deal. The suit contends that the merger, as proposed, disregards obligations owed to them as holders of debt issued by the company.
“The complaint seeks, among other things, monetary damages, rescission of the transaction in which the plaintiffs sold a substantial portion of their shares of common stock to the Company, and an injunction against the merger,” reported the company in its statement. “The Company believes this lawsuit is without merit and intends to defend vigorously against these allegations.”
In December 2018, Frost sold most of his holdings in Ladenburg Thalmann back to the firm for $130.2 million, or $2.50 per share in cash for his roughly 51 million shares and $76.35 million in newly issued 7.25% 10-year senior notes. At the time, he was the independent brokerage and advisory holding company’s largest shareholder, owning approximately 33% of the firm.
Before selling his Ladenburg Thalmann shares and resigning his chairmanship, Frost had consented to a $5.5 million SEC fine and a ban on trading penny stocks in response to fraud allegations related to a pump-and-dump scheme. The involvement of Frost, a biotech billionaire, in the alleged pump-and-dump scheme proved an embarassment for Ladenburg.
Advisor Group announced in November it would purchase Ladenburg Thalmann for $3.50 per share in cash, creating a $3 billion holding company for broker-dealers and advisory firms, the third largest of its kind in the U.S. Earlier this year, private-equity firm Reverence Capital acquired a majority stake in Advisor Group valuing the IBD network at about $2.3 billion.
Frost’s suit is among at least five that have been filed to prevent the transaction, all of which are “without merit” according to the Ladenburg proxy statement.
“We believe that Dr. Frost’s claims are without merit and we intend to defend them vigorously," wrote a Ladenburg Thalmann spokesperson on Monday. "Because this is an ongoing legal matter, we will not be commenting further at this time.”