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In wake of SEC charges, Ladenburg chairman cuts (some) ties with firm

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The parent of the 4,300-advisor independent broker-dealer network Ladenburg Thalmann is in flux after the SEC accused its chairman of involvement in a five-year, $27 million pump-and-dump scheme.

The Miami-based billionaire pharmaceutical and biotech investor Phillip Frost retired from Ladenburg’s board, which appointed CEO Richard Lampen to replace him, the firm announced on Sept. 20. The moves came two weeks after the SEC filed charges against 10 people and 10 associated entities.

Frost remains Ladenburg’s principal shareholder and the landlord of its headquarters through an affiliated company, according to its 2017 annual report. Ladenburg also has a $40 million revolving credit agreement with a Frost affiliate charged in the SEC case, Frost Gamma Investments Trust.

Ladenburg COO Adam Malamed will also join the board, which has at least two members with executive positions at another company where Frost is a major shareholder — Lampen and Vice Chairman Howard Lorber.

The company issued statements from Frost and Lampen on the moves.

“I have decided to retire from the Ladenburg board and will concentrate my efforts on OPKO Health and my philanthropic interests,” said Frost, a dermatologist who sold the generic pharmaceutical company Ivax to Teva Pharmaceutical Industries for more than $7 billion in 2005. “As a long-term shareholder, I am confident in Ladenburg’s outlook and look forward to its continued growth and success.”

Lampen noted that Ladenburg holds $250 million in cash and has a book value of more than $390 million. He also thanked Frost for 14 years on the board. The firm “would not be where it is today without his many contributions, and his presence in the boardroom will be sorely missed,” Lampen added.

Firms’ head counts show how they’re responding to a challenging time in which experts predict the number of advisors to fall in coming years.
September 17

Representatives for Ladenburg didn’t immediately respond to questions about the effective date of the appointments, or the extent to which they may or may not have been motivated by the SEC charges filed earlier this month in the Southern District of New York.

The regulator accused Frost, OPKO, Frost Gamma Investments Trust and Southern Biotech, a company co-owned by Frost, of being part of a group of “microcap fraudsters” led by cryptocurrency investor Barry Honig. The 15-count complaint charges them with violating antifraud, beneficial ownership disclosure and registration laws.

Articles submitted by one of the alleged conspirators to the website Seeking Alpha touting Frost’s investments helped boost the value of two penny stocks that later became virtually worthless, according to investigators, who also say Frost and his affiliates did not properly disclose their involvement in at least one of three microcap stocks involved in the scheme.

OPKO, where Frost serves as the CEO, has released a statement accusing the SEC of “serious factual inaccuracies” in the case.

“OPKO and Dr. Frost have always prided themselves on adhering to the highest standards of financial disclosure, and they are confident that once a proper investigation is completed and the facts of the case have been fully disclosed, the matter will be resolved favorably for them,” the company said.

Frost Gamma and Ladenburg entered into a revolving credit agreement for $30 million in 2007 in connection with the acquisition of Investacorp, one of its five IBDs, the company’s 2018 proxy shows. The credit line expanded to $40 million when Ladenburg acquired Securities America in 2011.

Ladenburg and Frost Gamma extended the maturity date of the credit agreement to 2021 in March 2016, and Ladenburg then borrowed and repaid $25 million in November 2016, the annual report says. The flow of capital followed a major stock purchase, primarily by Frost and an affiliate of Frost Gamma.

Lampen, Frost and Frost Nevada Investments Trust, who separately lent more than $150 million to Ladenburg in connection with the deal to buy Securities America from Ameriprise, had exercised warrants in October 2016 to purchase nearly 10.7 million shares of stock, Ladenburg’s 2016 proxy says.

Frost Real Estate Holdings, the landlord for the corporate headquarters of Ladenburg and Investacorp at the Miami building described by Forbes magazine as “command central for Frost's empire,” has current leases from the two firms, at a combined rent of more than $5.2 million over five years.

The links between Ladenburg and the noted Miami philanthropist, who owns more than a third of Ladenburg’s stock, also extend to Lampen and Lorber’s other firm, Vector Group, the parent of tobacco firm Liggett Group and real estate firm Douglas Elliman Realty.

Frost is the beneficial owner of more than 15% of the stock issued by Vector, and the firm also provided a five-year, $15 million loan to Ladenburg in November 2011 as part of a consortium including Frost, according to its latest annual report.

Vector and its subsidiaries own about 8% of Ladenburg's stock as well, Ladenburg's annual report says. Lampen serves as executive vice president of Vector, and Lorber is CEO.

The January 2017 Forbes profile noted 20 companies with significant stakes controlled by Frost, whom it also called “the Buffett of Biotech.”

“Thanks to Phil, we punch way above our weight," Lampen, a former Salomon Brothers banker, told the publication at the time.

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