Michigan Pension Accuses LPL Financial of Misleading Investors During Share Buyback

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A municipal pension fund in Michigan is suing Boston-based broker LPL Financial for allegedly misleading investors during a share buyback.

The Charter Township of Clinton Police and Fire Retirement System is seeking class-action status for its suit.

The alleged scheme, says the pension fund, allowed one of the broker’s largest shareholders to sell its LPL shares at an inflated price.

More details from the Wall Street Journal:

A Michigan pension fund has filed a lawsuit seeking class-action status against the Boston-based brokerage firm, saying it allegedly misled investors to inflate its stock price amid a $250 million share buyback plan that mostly benefited one institutional investor, according to the complaint filed in the U.S. District Court in the Southern District of California.

The Charter Township of Clinton Police and Fire Retirement System, which bought 4,000 shares of LPL earlier this year, says in the suit that LPL Chief Executive Mark Casady and Chief Financial Officer Matthew Audette conducted a “fraudulent scheme to allow” private-equity firm TPG to unload a lot of its LPL shares at an “artificially inflated price.”

[…]

LPL said in November that it would use $500 million from a debt refinancing to repurchase shares.

A month later, on Dec. 8, Messrs. Casady and Audette spoke at a Goldman Sachs Group Inc. conference and allegedly “made false and misleading statements” regarding LPL’s financial fourth-quarter financial performance, according to the complaint. Among the statements, LPL’s executives described its earnings stream as “quite steady” and said it had been executing its business plans well in the final months of 2015, the complaint says. Besides that, executives said commission revenue would be “more of the same,” compared with the third quarter, the complaint adds.

LPL shares rose the day of the conference, reaching $45.06 a share. Then, two days later, LPL followed through on half of its buyback plan, spending $250 million. Three-quarters of those funds were used to purchase 4.3 million shares of LPL common stock from TPG at $43.27, giving the buyout firm a $187 million profit, the complaint says.

Two months later, on Feb. 11, LPL disclosed fourth-quarter results that were below analyst expectations, causing its shares to fall to $16.50 a day later, erasing a third of their value in a single day. The company’s fourth-quarter profit fell roughly 45% to $48.5 million from the year-earlier period, while revenue dropped 8% to $1.02 billion.

Neither party commented on the matter.

 

Photo by Truthout.org via Flickr CC License

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