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The Rhode Island RIA keeps up the legal battle to clarify the size of his firm's equity stake
March 30, 2010 — 5:58 AM UTC by Brooke Southall
The lawsuit that David Brochu filed against his own roll-up, Focus Financial, is starting to take a big financial and emotional toll on him, he says.
The principal of Providence, R.I.-based StrategicPoint Investment Advisors LLC sued Focus Financial on Nov. 17 in Delaware’s Court of Chancery. The suit was brought under Brochu’s holding company name, Progressive Financial. StrategicPoint manages about $550 million of assets.
The result thus far of his effort, he says, is that his practice is suffering foremost from the double-barreled effects of his own legal fees — already surpassing the $200,000 mark — and the distracting emotions of being in a state of conflict.
The waiting game of the lawsuit [Read: StrategicPoint sues Focus Financial for information] got worse when a late February court date got postponed until early May, Brochu adds.
Paying the price
“I’m paying the price for asking questions,” he says. “I haven’t even made any allegations.”
The big roll-up has effectively taken control of his practice which has also decreased his personal cash flow, according to Brochu. It has also made him concerned that Focus will take control of his broker-dealer, he says. This fear prompted him to hire a separate lawyer to protect his interests in the broker-dealer, he says.
In the past, in response to Brochu’s allegations, Rudy Adolf, CEO of Focus Financial, said: “Some people just want to make a lot of noise, particularly when they are very small. Ultimately my colleagues and I just say: ‘It isn’t worth it.’”
Fears equity dilution
Brochu is suing to see the books and records of Focus Financial because he says he fears that the equity ownership that his firm holds in the roll-up was diluted 40% to 60% when it raised an additional $50 million of venture capital from Polaris Ventures and Summit Partners, both of Boston, back in November.
Because he can’t get an answer about where his equity stake stands in the wake of that financial event, his hand is forced to seek the pertinent books and records, Brochu says. His own firm, StrategicPoint, has investors to whom he owes the fiduciary duty to protect — and determining the company’s precise equity stake in Focus Financial is part of that, he adds.
Focus Financial has reached out to Brochu about the books and records, according to Loretta Mock, a senior account manager at Cognito who serves as a spokeswoman for the company.
“Focus values its relationships with all of its partner firms and maintains an open dialog,” she says. “We have been in ongoing discussions with one of our partners, Progressive Financial Strategies, related to requests for financial information. We have repeatedly invited Mr. Brochu to our headquarters to discuss these issues and have provided extensive documentation. To date, these invitations have been declined and attempts to resolve this issue have not been successful. It is unfortunate that Mr. Brochu decided to file the complaint. As this is an ongoing legal matter, Focus does not intend to comment further onthese issues.”
For Brochu’s part, he will happily let everyone know that he’s wrong, if need be, he says.
“If they turn over unredacted documents, all [legal] proceedings will stop and, if I’m wrong, I’ll make a public apology and we’ll go on,” Brochu says.
He adds: “I don’t want to hurt Focus; it’s my own equity.”
The impact on Brochu’s income has been made worse because – despite lower cash flow – he has not been able to lower costs, he says.
“They have prohibited me from reducing headcount,” he says. Brochu no longer has the authority to make big personnel decisions for StrategicPoint based on his contract with Focus Financial, he says.
The legal drama between Brochu and Focus Financial has also been a big distraction that has kept him from building up his own practice. “We just had a big fight about it this morning,” he says.
Brochu says that the lawsuit has been draining emotionally and he has had virtually no support from fellow partners of Focus – describing himself as a “pariah.”
Other partners steer clear
“There are others who have spoken to me and have told me they don’t want to be involved,” he says.
There is an explanation for why Brochu sees the matter so differently from the other 17 partner firms that are part of Focus, Adolf said in an earlier interview.
“Of course in a large organization there’s going to be somebody who’s unhappy,” he says.
Mentioned in this article:
Focus Financial Partners, LLC
Top Executive: Rudy Adolf
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