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Ladenburg not dependent on ex-chairman’s capital for growth, CEO says

The SEC charges against Ladenburg Thalmann’s primary shareholder will not affect access to capital for its 4,300-advisor independent broker-dealer network, CEO Dick Lampen says.

Phillip Frost retired from the Miami-based firm’s board on Sept. 20, two weeks after the SEC accused him of involvement with a $27 million pump-and-dump scheme.

In addition to the network of five IBDs, Ladenburg’s subsidiaries also include its 139-year old investment bank, an asset management unit, an insurance brokerage and a trust division. The company’s various entities hold $250 million in cash with a book value above $390 million, Lampen noted in a statement.

Ladenburg is “very pleased about how well-positioned our company is today for continued industry leadership,” he said, noting it also has $600 million “in permanent capital and long-term investment-grade notes” raised in the past five years.

“With access to significant capital resources,” Lampen added, “Ladenburg will continue to explore opportunities for growth, including growth through strategic acquisitions, if and when the right opportunities present themselves.”

Frost controls about 35% of the company, according to Barrington Research Associates, the sole analysts currently listed as covering the stock. He owns about 3.1 million shares directly and 67.7 million shares indirectly through two entities where he’s the trustee, an SEC Form 4 filing shows.

Thirteen of the top 25 companies generated double-digit growth in 2017 as rivals close in on the perennial No. 1 firm.
June 4

Frost exercised options to purchase nearly $1 million worth of Ladenburg’s stock on Sept. 24, according to the filing. In a separate transaction, he had forfeited 45,000 shares in connection with his retirement from his role as chairman.

In the second transaction four days later, Frost exercised his options and held the stock rather than selling the 600,000 shares valued at $948,000, or $1.58 per share. The options, which the company granted him in 2008, would have expired on Oct. 30.

The SEC charged one of the stock-owning entities in which Frost is a trustee, Frost Gamma Investments Trust, in the pump-and-dump case. The other, Frost Nevada Investments Trust, is an affiliate of Frost Gamma, according to the firm’s $40 million credit agreement with Frost Gamma.

In a civil case filed earlier this month in the Southern District of New York, the regulator charged Frost, nine other people and 10 entities with selling penny stocks at artificially inflated prices. Retail investors wound up holding “virtually worthless” stock, the SEC says.

The billionaire dermatologist’s fortune, which stems from his legendary career as an entrepreneur in the pharmaceutical and biotechnology fields, helped Ladenburg acquire its five IBDs between 2007 and 2015. Frost has largely taken “a passive role” with the IBDs, though, says recruiter Jon Henschen.

Henschen sees the SEC case against Frost as much different from the accounting scandal which plunged former Cetera Financial Group parent RCS Capital into bankruptcy protection in 2016.

“It has nothing to do with Ladenburg,” Henschen says. “They’re basically putting up a Chinese wall to shield them, whatever does transpire there. Whether he’s innocent or not, it’s not going to involve Ladenburg.”

Barrington analyst Alexander Paris reiterated the research firm’s “outperform” rating for Ladenburg’s stock in a Sept. 21 note following the announcement of Frost’s retirement. Paris set a 12-month price target of $4.75 per share, or roughly an 95% increase over its current value of $2.44.

Paris noted that Frost had expressed confidence in Ladenburg’s outlook even as he stepped down, which “suggests to us that he has no current plans to sell or reduce” his stake in the firm. The analysts “can attest to his long-term and successful approach to investing,” Paris wrote.

The sell-off following word of the SEC charges against Frost left the value of Ladenburg's shares at 60% of its projected 2018 revenue, according to Paris, who describes the price of the firm’s stock as a discount on the ratio of 1.3-times-revenue for shares in its “closest proxy,” LPL Financial.

“We expect continued growth going forward, as Ladenburg leverages its significant scale and capitalizes on further consolidation opportunities,” Paris wrote.

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