Like a bride getting ready for her wedding day, independent broker-dealer J.P. Turner & Co. last year spent a staggering $8.8 million to resolve outstanding litigation as it prepares to get hitched to Nicholas Schorsch's RCS Capital later this quarter.
That sum, 10.7% of the firm's $82.3 million in total revenue last year, pushed J.P. Turner into a loss of $3.2 million for 2013, according to a filing in March with the Securities and Exchange Commission. It is also more than five times the $1.65 million the firm set aside for litigation expenses in 2012.
(See also: Schorsch buys independent broker-dealer J.P. Turner; second deal in a week)
The company “had a significant loss for 2013 that was primarily related to costs incurred to defend and settle litigation and arbitration,” according to the filing. “During 2013, [J.P. Turner and related companies] were dependent upon capital contributions from their owners for working capital and to meet its regulatory net capital requirements. In addition, the owners made capital contributions in January 2014 to enable the company to meet required net capital.”
Heidi Wheatley, a J.P. Turner spokeswoman, said that the firm made a conscious effort last year to wrap up any lingering litigation or arbitration. “In 2013, [investor claims] we normally would have defended, we settled to get off our backs and get a fresh start with RCAP,” she said.
“We're getting rid of advisers we don't want,” Ms. Wheatley said, adding that six years ago the firm had 600 brokers and now has just 325.
RCS Capital's announcement to buy J.P. Turner caused some in the independent broker-dealer industry to question Mr. Schorsch's strategy. J.P. Turner in the past has focused on brokers with highly transactional books of business and those brokers at times ran into trouble with regulators. The independent broker-dealer industry has steadily moved away from the transactional broker, instead seeking reps and advisers who generate fees from assets under management.
RCS Capital Corp., of which Mr. Schorsch is executive chairman, in January said it intended to acquire J.P. Turner for $27 million in cash and stock. In total, RCS Capital and related entities have closed or are working to complete five broker-dealer acquisitions in the past 10 months, with others potentially in the wings.
In an interview Wednesday, Mr. Schorsch said that the money J.P. Turner paid out for litigation and arbitration showed that the firm had moved past its regulatory problems. “It's clearly the final piece,” he said, noting that midsize broker-dealer Berthel Fisher & Co. and giant
LPL Financial also recently made settlements with regulators and investors to close litigation.
“Most of this [legal action] is from advisers who have left,” Mr. Schorsch said. “This is the end of the story, not a new story.”
