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Pacific Life takes a punch at LPL over potentially millions in lawsuits

Investment News

By Bruce Kelly

LPL Investment Holdings Inc. and Pacific Life Insurance Co. are staring each other down over which firm will have to pony up the potentially millions of dollars in claims stemming from fraud suits against a rogue broker from one of the three independent-contractor firms LPL acquired from Pac Life two years ago.

Veiled references to the quarrel first surfaced this month in official filings.

Last week, in its quarterly earnings report to the Securities and Exchange Commission, LPL said that it was in dispute with an unnamed third-party indemnifier “in connection with various acquisitions.”

Until now, the report said, the “indemnifying party” defended and paid “for certain legal proceedings and claims.”

The LPL report said that it received a written notice Oct. 1 from an unnamed third party saying that “under a certain purchase and sale agreement” the third party “is no longer obligated to indemnify the company for certain claims” under the agreement.

LPL “believes that this assertion is without merit and intends to vigorously dispute it,” the report said.

One source close to Pacific Life, who asked not to be identified, said the unnamed third party was “absolutely” Pacific Life.

Recent changes in LPL’s clearing agreement with the former Pac Life reps could have triggered the dispute, industry observers said.

In 2007, LPL paid around $97 million for the three firms – Mutual Service Corp., Associated Securities Corp. and Waterstone Financial Inc. – which at the time had a combined 2,200 reps and advisers generating $350 million in gross revenue.

Those three broker-dealers maintained clearing platforms of their own, at first with Pershing LLC and then with a combination of Pershing and LPL’s proprietary platform, BranchNet.

That all changed in September, when LPL moved the remaining 1,700 reps and advisers from those three firms off that platform and solely onto its own self-clearing platform.

That shift of brokers on to the LPL platform may have triggered the legal salvo from Pacific Life, industry observers maintained.

The claims that Pacific Life wants to have off its books involve former Associated Securities broker Jeffrey Forrest, who lost an $8.8 million arbitration claim earlier this year.

The attorney for the plaintiffs in that casesaid that over the summer he filed two more claims totaling $10.5 million against Mr. Forrest, who has been barred from the securities business.

Asked last spring about the company’s liability for Mr. Forrest, a company spokesman, Tennyson Oyler, made it very clear that Pac Life was responsible.

“As is customary in transactions of this type, Pacific Life has agreed to indemnify LPL for certain liabilities related to pre-close activities,” he said.

Today, Mr. Oyler did not return a phone call seeking comment.

An LPL spokesman, Joseph Kuo, said, “As a matter of policy we have no comment beyond the disclosure in our” quarterly report. “We have a long-standing and productive relationship with Pacific Life.”