On Advice

Why did Sterne Agee fire its CEO?

Many want to know, especially in light of accusations of all manner of professional hanky-panky at the firm

Jun 8, 2014 @ 12:01 am

By Bruce Kelly

Sterne Agee Group Inc., a private holding company with a number of broker-dealer subsidiaries, two weeks ago gave the heave-ho to its longtime chairman and chief executive, James Holbrook Jr., and replaced him with company veteran Eric Needleman.

So far, the company has said little as to why it axed Mr. Holbrook.

But that doesn't mean there aren't plenty of people who want to find out what happened at Sterne Agee, particularly considering that it and Mr. Holbrook were sued last year by a former chief financial officer, Brian Barze. Mr. Barze alleged all manner of hanky-panky — including fraud, breach of contract and defamation — at the company.

“The executive leadership change had been under consideration for months,” Kelly Brennan Bolvig, a senior vice president at Sterne Agee, said in a statement to InvestmentNews. “It was not the result of a single event. The board made a choice between the vision new management offered and vision of the old management.”

Sterne Agee is a regional investment house with $23 billion in client assets under management, a large clearing operation for independent broker-dealers and an investment bank.

The firm is based in Birmingham, Ala., under the watch of the Alabama Securities Commission, one of the better funded and most active of the state securities regulators.

“We are aware of what's occurring at Sterne Agee,” said Joseph Borg, director of the commission. “Because it's in our backyard, it would be of interest.” He declined to comment on whether the commission had launched a formal action or an investigation into Sterne Agee.

“Like all financial institutions, we receive inquiries from authorities and regulatory agencies from time to time,” said Ms. Bolvig. “We respond to those inquiries responsibly and promptly as a matter of course.”

Mr. Holbrook could not be reached for comment. Bruce Gordon, Mr. Holbrook's attorney, was not available to comment last Friday.

Another group that likely is seeking information about Mr. Holbrook: the 350 registered representatives and advisers from independent broker-dealer WRP Investment Inc.

In April, Sterne Agee said it was buying WRP. Ms. Bolvig said the firm expects to close on the acquisition, which is expected by the middle of this month. Advisers at WRP, who produced $48 million in gross revenue in 2013, would certainly want a full explanation of why Mr. Holbrook got the boot.

His son and former chief operating officer, Billy Holbrook, also was fired, along with an unknown number of other executives and employees.

Will those changes affect the WRP advisers' relationships with clients and their standing as advisers?

30-DAY DEADLINE

According to industry rules, after terminating an adviser or executive, a firm has 30 days to report publicly the reasons for the firing on his or her BrokerCheck employment record. Mr. Holbrook was reportedly shown the door on May 23, which means Sterne Agee has about two more weeks to make that report.

Mr. Barze's lawsuit isn't the only complaint involving Sterne Agee that alleges financial misdeeds.

The same week that Mr. Holbrook got the ax, Sterne Agee sued its auditor, KPMG.

It claimed that “KPMG performed auditing services for Sterne that resulted in Sterne's suffering sufficient money damages due to KPMG's negligent performance of those audit services in connection with KPMG's audits of consolidated financial statements,” according to the complaint.

“The claims do not involve allegations of fraud by KPMG or any other party,” according to Ms. Bolvig. “Sterne Agee's claim against KPMG relates to a discrete issue involving the proper accounting treatment of loans to employees for the purchase of company stock.”

KPMG said it had no comment on Sterne Agee's lawsuit.

Sterne Agee's allegations, along with Mr. Barze's suit, raise a number of questions as to what on earth has been going on at this company.

Mr. Barze's complaint against Mr. Holbrook and Sterne Agee is larded with eye-popping details alleging Mr. Holbrook's profligate spending.

Mr. Barze joined Sterne Agee in July 2009, less than a year after the collapse of Lehman Brothers Holdings Inc. It was a time when investment houses such as Sterne Agee were tightening their belts and counting pennies, because management across the industry was fearful they could collapse and go out of business.

Mr. Barze was the fourth CFO at Sterne Agee in six years, according to the complaint, which charged that spending in the executive suite was out of control.

“As Barze soon learned, Holbrook uses Sterne Agee and its resources and corporate toys for Holbrook's own personal pleasure, thereby contributing enormously to the wasteful and abusive spending at Sterne Agee that detracts from its profitability,” according to the complaint. “For example, Holbrook bought luxury watches, women's shoes and jewelry with Sterne Agee funds as gifts for Holbrook's employee acquaintances.”

PERSONAL USE

The complaint also alleges that Mr. Holbrook spent hundreds of thousands of dollars on personal use of corporate aircraft and that he had nearly exclusive use of a Sterne Agee yacht, powerboat and condominium in Florida.

The company fired Mr. Barze in August 2012.

When the complaint was first reported in March 2013, the company disputed Mr. Barze's claims, saying the lawsuit grossly mischaracterized the expenses.

A little more than a year after that denial, Sterne Agee fired the man at the center of the complaint's most damning allegations. Sterne Agee should come clean now and tell its current workforce of 1,600 professionals and the 350 WRP advisers exactly what happened to Mr. Holbrook. It's the right thing to do for its employees, advisers and clients.

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