RCS Capital Corp. and its brokerage unit, Cetera Financial Group, are suing Lightyear Capital for raiding Cetera's executive ranks and potentially harming its future prospects.
Lightyear and a Canadian pension fund, the Public Sector Pension Investment Board, last month announced it was acquiring the
AIG Advisor Group from the giant insurance company, American International Group Inc.
In its lawsuit, RCS Capital, or RCAP, alleges that Lightyear is assisting Cetera executives in breaking non-compete agreements as they jump ship and move first to Lightyear and eventually to the Advisor Group when the transaction closes.
The lawsuit also alleges that Lightyear is breaking prohibitions in a September 2015 confidentiality agreement it signed concerning a potential transaction with RCAP.
Lightyear and RCAP know each other well. Lightyear, the
private equity firm owned by Don Marron, previously owned Cetera and in April 2014 sold it for $1.1 billion to RCAP, which at the time was controlled by the former nontraded real estate investment
trust czar Nicholas Schorsch.
Burdened by debt and the faltering sales of nontraded REITs, RCAP entered bankruptcy protection at the end of last month. Mr. Schorsch no longer controls RCAP.
(More: How Nick Schorsch lost his mojo)
RCAP and Cetera charge Lightyear with inducing “trusted and critically important senior officers of [Cetera] to join Lightyear and provide it with instant access to, among other things, the company's invaluable relationships with independent financial advisers that comprise the backbone” of RCAP's core business, the retail network of 9,100 advisers,
according to the complaint.
“Upon information and belief, Lightyear or its agents have solicited and will continue to solicit other company employees and officers to join Lightyear and leave the company at a crucial time in the ongoing restructuring process,” according to the complaint, which was filed on Thursday as part of RCAP's bankruptcy proceedings in U.S. bankruptcy court in Delaware.
Two former Cetera executives who this month resigned from Cetera to join Lightyear are named in the RCAP complaint. They are Cynthia Hamel and Susan Theder. Ms. Hamel was senior vice president, strategic operations, for Cetera and Ms. Theder was its chief marketing officer.
Lightyear, Ms. Hamell and Ms. Theder “may target the company's best and longest-standing independent financial advisers using the information and insight [Ms.] Hamel and [Ms.] Theder obtained through the course of their employment at” Cetera Financial Group, according to the complaint.
Valerie Brown, previously the CEO of Cetera from February 2010 until it was purchased by Mr. Schorsch and RCAP, is the incoming executive chairman of the board for Advisor Group.
RCAP's and Cetera's complaint alleges breach of contract against Ms. Hamel and Ms. Theder and breach of contract and tortious interference against Lightyear.
A spokeswoman for Lightyear, Janet Reinhardt, said the company had no comment on the lawsuit at this time. A spokesman for Cetera, Joseph Kuo, had no comment.
Another Cetera executive, Ahmed Hassanein, its chief accounting officer, also resigned from Cetera this month to join Lightyear, according to the complaint. He is not named in the lawsuit.
Cetera Financial Group is the umbrella organization for 10 independent broker-dealers that house 9,100 registered reps and advisers. It is expected to emerge from bankruptcy protection later this year.
Advisor Group has four broker-dealers under its roof and is home to 5,200 advisers.
This story was first reported Thursday by AdvisorHub
