Keith Gregg, former president and chief executive of First Allied Securities Inc. of San Diego, is suing the firm, claiming that he was forced out after complaining about improper practices at the company. Officials at the firm deny the charges and were set to answer the complaint and file a counterclaim against him today.
Mr. Gregg, a prominent executive in the independent-broker-dealer industry, left First Allied last fall after running the firm since December 2007.
In January, he filed an arbitration claim with the
Financial Industry Regulatory Authority Inc. of New York and Washington in which he claimed that the company marketed private placements to unqualified investors and made illegal kickbacks to select brokers.
The suit names Adam Antoniades, president of First Allied; Joel Marks, chief operating officer for First Allied's parent company, Advanced Equities Financial Corp. of Chicago; and the co-founders of Advanced Equities, chairman Keith Daubenspeck and chief executive Dwight Badger.
Mr. Gregg has “made many allegations that we intend to prove are false,” Mr. Marks said.
Mr. Gregg's suit hits Advanced Equities in a sensitive spot. The firm markets itself as a pioneer in providing individual investors with access to late-stage private-equity offerings.
His lawsuit claims that First Allied engaged in mass marketing of the private-equity deals to unaccredited investors, and that the deals were misrepresented as offering returns of from three to four times the investment within 18 to 24 months.
Mr. Gregg also claims that First Allied overcharged clients for a managed-money product called ETF Select, a discretionary tactical allocation program, and then returned 0.3% of the fee to certain brokers as a rebate without disclosing the payments to clients.
Mr. Gregg claims that he was ousted after informing the Securities and Exchange Commission and Finra about his concerns.
He declined to be interviewed for this story.
Under the law, “you have to make disclosures of any illegal conduct you think is occurring,” said Mr. Gregg's attorney, Kevin Mirch of the Mirch Law Firm in San Diego.
After Mr. Gregg informed regulators, he was terminated from First Allied, according to the complaint.
Mr. Marks said the claims by Mr. Gregg are simply a “carefully crafted” effort to generate some publicity.
“We don't believe [Mr. Gregg is] a whistleblower,” said Mr. Marks, who declined to discuss the reasons for Mr. Gregg's departure from First Allied.
Regarding the alleged kickbacks, Mr. Gregg is wrongly claiming that a normal fee-distribution arrangement is improper, Mr. Campanale said.
Third-party advisory firms that use Advanced Equities as a subadviser routinely add fees to the wholesale cost of the ETF Select program, he said.
“It's a pay[ment] for service [and] completely and fully disclosed” to clients, Mr. Campanale said. “It's no different than any other subadvisory relationship.”
In addition, investors interested in the firm's private-equity deals are, in all cases, pre-qualified by compliance and supervisory staff, Mr. Antoniades said. “We actually hold ourselves to a slightly higher [accredited-investor] standard” than the law requires, he added.
In April, Mr. Mirch filed another claim against First Allied on behalf of David Carle, a San Diego-based former regional director at the firm, who makes many of the same allegations as Mr. Gregg.
According to Finra registration records, Mr. Carle left First Allied in November.
The Supreme Court of Nevada disbarred Mr. Mirch last year for filing a lawsuit against another attorney that was deemed frivolous. In that case, a state bar disciplinary panel concluded that the Nevada lawsuit was part of a pattern of misconduct by Mr. Mirch.
Mr. Mirch was not available to comment on the specifics of his Nevada disbarment.
E-mail Dan Jamieson at [email protected].
