Former Ladenburg chairman files suit to stop Advisor Group merger

A year after cutting ties with Ladenburg Thalmann Financial Services Inc., Dr. Phillip Frost, formerly its chairman and largest shareholder, has filed a suit against his old firm as it is poised to merge with Advisor Group.

In a lawsuit filed earlier this month, Mr. Frost and a trust he controls contend that  Ladenburg's board's decision to enter the merger fails to take into consideration obligations owed to them as noteholders of the company, according to a filing Thursday with the Securities and Exchange Commission.

The lawsuit seeks monetary damages, a halt to the merger and the cancellation of the 2018 transaction in which Mr. Frost and his related trusts sold a substantial portion of their shares of common stock to Ladenburg, according to the filing.

A spokesman for Ladenburg released the following statement in response to the lawsuit: “We believe that Dr. Frost’s claims are without merit and we intend to defend them vigorously. Because this is an ongoing legal matter, we will not be commenting further at this time.”

A spokesman for one of Mr. Frost's other companies did not immediately comment Friday morning.

Mr. Frost’s is not the only lawsuit challenging the merger. The company faces five other shareholder suits. 

Advisor Group, which is majority-owned by private equity manager Reverence Capital Partners, announced it was buying Ladenburg in November. Each share of Ladenburg’s common stock will be converted into a cash payment of $3.50 a share. The total enterprise value of the deal is about $1.3 billion. Last December, Ladenburg said that it had repurchased close to 51 million shares from Mr. Frost. The selling price was $2.50 per share.

The combination of Adviser Group and Ladenburg Thalmann creates a giant firm with more than $450 billion in assets under management, $3 billion in annual revenues and nearly 11,500 advisers.

The separation of Mr. Frost from Ladenburg Thalmann has been far from smooth. In September 2018, the SEC charged Mr. Frost and a group of other investors with fraud for their involvement in a pump-and-dump, penny-stock scheme that allegedly generated $27 million from unlawful stock sales. Mr. Frost settled those charges at the end of last year. 

By then, he had already cut most of his ties with Ladenburg. Last Christmas Eve, the broker-dealer announced that Mr. Frost had sold most of his stake back to the firm.