Close Close

Portfolio > Alternative Investments > Private Equity

RCS Capital, Cetera Sue Lightyear Over Poaching, Harm to Advisor Business

Your article was successfully shared with the contacts you provided.

Another week. Another RCS Capital saga.

On Thursday, beleaguered RCS Capital (RCAPQ) — now in bankruptcy proceedings — and the Cetera Financial Group of independent broker-dealers (which RCAP owns) filed a lawsuit against Lightyear Capital in the U.S. Bankruptcy Court in Delaware. The suit asks for an injunction and other measures to protect RCAP and Cetera’s interests.

According to the suit, the action has been brought against Lightyear and two former Cetera executives now with the private equity group — Cynthia Hamel and Susan Theder — over allegations that the firm is enticing senior officers to leave Cetera and join it. Such poaching and other actions are threatening the restructuring deal Cetera reached recently with several creditors in order to stay in business, it says.

Lightyear, which now is in the process of buying the Advisor Group from AIG, is thus able to obtain Cetera’s “invaluable relationships with the independent financial advisors that comprise the backbone of [its] core asset, the retail business, which is the key component of [its] proposed restructuring,” according to the lawsuit.

Cetera was sold by Lightyear to RCS Capital in 2014 for over $1 billion.

Tangled Relations

Additionally, the suit claims, Lightyear and its agents “deliberately and knowingly assisted Hamel and Theder to breach their Agreements Not to Compete, and Lightyear has flouted the express prohibitions against soliciting senior company employees and officers,” such as Hamel, Theder and Ahmed Hassanein, as set forth in a September nondisclosure deal reached between Lightyear and RCS Capital.

Cetera, which includes about 9,100 affiliated advisors, is led by Larry Roth, who used to be head of the AIG Advisor Group and is a trained attorney. When he moved to RCAP in mid-2014, then-Cetera CEO Valerie Brown was pushed out.

Brown has been tapped to lead the Lightyear-owned Advisor Group, which has about 5,200 affiliated reps, as its new executive chairman once Lightyear’s purchase of the group is wrapped up, most likely in the second quarter.

And there’s more.

Lightyear was one of some 25 companies that RCS Capital met with last year when it was trying to raise capital. In fact, Lightyear was one of 10 potential investors who signed a confidentiality agreement as part of this process.

While the private equity group agreed to the nondisclosure agreement on Sept 26, 2015, and performed due diligence regarding a potential transaction, it “did not submit a bid or otherwise provide an indication of interest,” the suit explains.

However, according to RCAP, “Lightyear’s actions constitute breach of contract, tortious interference with contractual relationships, and breach of the implied covenant of good faith and fair dealing,” it explained. “Absent the issuance of injunctive relief, the defendants’ actions will cause irreparable harm to the retail [advisor] business and will imperil the proposed restructuring to the detriment of all creditors and stakeholders of the debtors.”

RCS Capital, Cetera and Lightyear declined to comment on the matter on Friday. 

— Check out What Will Lightyear Do With AIG Advisor Group? on ThinkAdvisor.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.