Years later, lawsuits and debt still haunt investment firm deal

Sterne Agee's Richmond office at  707 E. Main St. (Photo by Michael Schwartz.)

Sterne Agee’s Richmond office at 707 E. Main St. Photo by Michael Schwartz.

The Anderson & Strudwick name largely disappeared from the Richmond financial scene when the longtime downtown firm was acquired by an out-of-town buyer in 2011.

But troublesome remnants of the investment company’s past linger on and are coming back to haunt the firm that bought it nearly four years ago.

An ongoing bankruptcy court battle currently being waged in Richmond could leave Alabama-based Sterne Agee, which took over Anderson & Strudwick and continues to operate downtown, on the hook for as much as $22 million in leftover debt that may be owed to A&S creditors.

Much of that debt stems from class-action lawsuits filed over an apparently botched IPO of an offshore drug company that A&S was involved in 2011.

Earlier this month, a federal bankruptcy judge in Richmond paved the way for Sterne Agee to potentially become a so-called “successor-in-liability,” which would make it responsible for A&S debt because it bought the company. Sterne Agee continues to argue otherwise and is fighting the battle while in the midst of a pending deal to be acquired by the much larger Stifel Financial Corp. for approximately $150 million.

The dispute began last May, when a former A&S executive petitioned to push the surviving post-acquisition A&S entity – essentially a leftover shell designed to deal with lingering debts – into an involuntary bankruptcy.

Sterne Agee said at the time that it had no involvement in the bankruptcy filing and didn’t intend to become involved.

The case was confirmed in June, a Chapter 7 trustee was appointed later that month and the bankruptcy estate began to search for other assets and debts.

The trustee and his attorneys found that the bulk of the A&S entity’s assets were made up of $1 million that was apparently set aside in escrow as part of the deal with Sterne Agee. Its initial debts and liabilities listed in bankruptcy filings amounted to about $500,000.

Other debts emerged, largely from claims made against the bankruptcy estate from class-action lawsuits that were filed against A&S and Sterne Agee over the 2011 IPO.

The stock offering was for Tibet Pharmaceuticals, a company that was incorporated in the British Virgin Islands and manufactured and sold drugs in China.andersonstrudwickinside

A&S served as the underwriter in the IPO, which was carried out a few months prior to the announcement of its deal with Sterne Agee. The offering was completed in early 2011 and raised $14.4 million through the sale of 3 million shares to investors.

But Tibet Pharmaceutical’s status quickly went awry. Questions were raised about the true state of its financials, trading of the stock was halted and the company was eventually delisted from Nasdaq in early 2012

A string of lawsuits that turned into class-action cases were filed between 2012 and 2014, alleging that the prospectuses passed around to investors leading up to the IPO misstated the true financial condition of Tibet Pharmaceuticals and therefore violated federal securities laws.

A&S was named as a defendant in the cases based on the argument that, as underwriter, it knew or should have known of the inaccuracies in the prospectuses.

The cases also name Sterne Agee as defendant as successor-in-liability, meaning that when it acquired A&S, it acquired the responsibility to pay those potential liabilities.

One of the class-action suits in New Jersey currently has attorneys on both sides grappling over the same issue as the case in Richmond: whether Sterne Agee should be held responsible.

Sterne Agee has held firm that it is not liable for the A&S debts and also argues that it is entitled to access to the $1 million in escrow funds and that the money should not be considered part of the A&S bankruptcy estate.

The judge’s opinion issued April 8 in Richmond federal court sided with the A&S trustee, allowing him to continue to pursue Sterne Agee as the successor to the debts.

Last week, Sterne Agee filed a motion saying it disagrees with the judge’s opinion and that it is not liable for the obligations of A&S “as a successor or otherwise.”

Sterne Agee is represented in Richmond by law firm Christian & Barton. Attorney Jennifer McLemore from Christian & Barton would not comment on the bankruptcy case.

Sterne Agee is also represented by Alabama law firm Maynard, Cooper & Gale. Attorney J. Leland Murphree did not return a call seeking comment.

Rob Muller, who is listed as Sterne Agee’s Richmond branch manager, could not be reached for comment by press time.

Vernon Inge, an attorney with LeClairRyan in Richmond, is representing the Chapter 7 trustee.

Regarding the case, Inge said: “We believe the trustee has very strong claims and we intend to pursue them.”

It is unclear how, if at all, the lingering A&S legal issues may affect Sterne Agee’s pending deal with Stifel, or how that deal might affect the ongoing bankruptcy matters.

Sterne Agee spokesman Todd Decker referred calls to Stifel. Stifel spokeswoman Sarah Anderson said the company has no comment on the Sterne Agee and A&S legal matters.

Stifel’s acquisition of Sterne Agee is expected to close in late spring.

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