by Bruce kelly and featured in Investment News
The big unknown surrounding Progressive Asset Management Inc.’s announcement last week that it is buying GunnAllen Financial Inc. is whether the socially conscious investment firm will acquire only GunnAllen’s 700 reps and their assets or the legal entity of the independent broker-dealer.
The fine points of the Progressive/GunnAllen marriage are important because the broker-dealer carries with it a history of legal disputes with customers stemming from the activities of Frank Blue-stein, a rogue broker who allegedly steered clients to a Ponzi scheme that went bust in 2007. GunnAllen also has had recent legal problems stemming from the blowup of private placements.
“We believe [the Financial Industry Regulatory Authority Inc.] is closely watching the [merger] situation,” said Scott Silver, an attorney with Blum & Silver LLP who says he represents about 100 investors with arbitration claims against the firm in the Bluestein matter, along with clients suing over the sale of Provident Royalties LLC private placements.
Last summer, the Securities and Exchange Commission sued Provident for fraud and in October filed fraud charges against Mr. Bluestein.
If completed, the deal — terms of which have not been disclosed — would create a broker-dealer with about 1,000 independent reps and advisers, catapulting the firm into the top 30 largest independent broker-dealers, according to InvestmentNews’ most recent rankings. Progressive controls Financial West Investment Group Inc., a broker-dealer and investment adviser with 340 reps and 140 offices.
If the entire firm were acquired, any liabilities of GunnAllen would be borne by the new owner, Mr. Silver said. “The law doesn’t allow a whitewash of a company simply by changing the name on the door,” he said.“You’d hope that [Progressive] has done its due diligence to see what liabilities have been dealt with and what lies ahead,” said Jonathan Henschen, an industry recruiter.
When GunnAllen was in a growth spurt a few years ago, it became known as a firm willing to take on reps with checkered compliance histories and had a large -number of reps under special supervision.Whether the entire firm or just its sales force is acquired, Mr. Henschen wonders whether Progressive will be willing to keep representatives with multiple marks on their compliance records.
“We are looking forward to the next phase,” said David Levine, executive vice president of GunnAllen, who added that any deal would need Finra’s approval.
Fred Kraus, GunnAllen’s president, did not return a phone call for comment.
Over the past two months, several developments have shaken GunnAllen. In early December, John Sykes, the firm’s owner and chairman of its holding company, Gunn-Allen Holdings Inc., abruptly resigned from the board. Shortly afterward, he bought the Pointe Capital Inc. broker-dealer from Gunn-Allen Holdings, saying he intended to focus on the wealth management business.
Also in December, regulators from Finra descended on Gunn- Allen’s Tampa, Fla., offices to seek documentation that the firm was meeting the net-capital requirements it needed to remain open for business.
Richard Torgerson, president of Progressive Asset Management, did not return a phone call seeking comment.
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