Brooke’s note: Focus Financial provided us with an updated statement today [May 19] regarding its legal case with David Brochu. It is inserted in the story in place of its original statement. Brochu’s response to the new statement is also included below.
Focus Financial Partners LLC has apparently pushed out the principal of one of the first RIAs that joined the giant roll-up.
Focus has been in a legal battle with the head of Providence, R.I.-based StrategicPoint Investment Advisors LLC, David Brochu. The principal of Providence, R.I.-based StrategicPoint Investment Advisors LLC sued Focus Financial on Nov. 17 in Delaware’s Court of Chancery.
In his suit, Brochu asked to review the company’s books and records because he believed that his ownership may have been diluted in transactions Focus Financial made last year. The New York-based aggregator acquired RIA firms and it also raised $50 million of venture capital that he believes may have shifted his ownership stake unfairly. It now has 18 partner firms with more than $30 billion of assets under management.
Focus Financial issued this statement today [May 19] on Brochu’s exit of Friday, May 7.
“David Brochu is presently no longer with StrategicPoint. We cannot comment further on this topic,” it reads. “However, Focus Financial Partners and StrategicPoint can confirm that they obtained restraining orders against David Brochu.
“Going forward, StrategicPoint will be led by Rick Anzelone and Betsey Purinton, with Derek Amey and Aaron Simmons, who together have almost 40 years of experience with Strategic Point. These seasoned professionals are continuing to provide clients with the highest quality of service. Focus believes that the strengths of these experienced professionals will continue to propel StrategicPoint forward, and we look forward to many successful years of partnership with the firm.”
Brochu responded in the following way to the contention that Focus Financial obtained restraining orders against him:
“The statement that Focus obtained a restraining order against me is a gross mis-characterization of the circumstances and I demand an immediate withdrawal or modification. If such a modification is not forthcoming, I will produce a complete vetting of the last nine months’ activity and let readers decide for themselves who has acted in good faith and who has not. I have restrained myself in an effort to protect those not culpable for Focus’ behavior. However, I will not tolerate the continued attacks on my reputation.”
Before Focus included mention of the restraining order in its statement, Brochu made this more subdued remark.
Period of uncertainty
“It was an honor and a privilege to be head of Strategic point for the last 20-plus years,” Brochu said. “While the current situation is still in some flux, the management team currently running StrategicPoint has been at my side for in excess of 10 years each. They are all well-equipped to guide the company in this period of uncertainty.”
It’s unclear what brought the dispute to a head. Brochu’s exit merely escalates a situation that Brochu described in some detail to RIABiz that ran in the March 30 article: David Brochu finds his lawsuit against Focus Financial is a rough experience.
“I’m paying the price for asking questions,” he said in an earlier interview. “I haven’t even made any allegations.”
RIAs become partner firms of Focus Financial by selling it a substantial percentage of their revenues in exchange for cash and equity.
At the time Brochu spoke to RIABiz in March, Focus had already effectively taken control of his practice which had also decreased his personal cash flow, according to Brochu. He also expressed fears that Focus would take control of his broker-dealer. This fear prompted him to hire a separate lawyer to protect his interests in the broker-dealer, he added.
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
In a lawsuit brought under Brochu’s holding company name, Progressive Financial, Brochu sued to see the books and records of Focus Financial. He said 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 said in the earlier interview. 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 added.
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 said in March to RIABiz. “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.”
For Brochu’s part, he said he would happily let everyone know that he’s wrong, if need be.
“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 said in the earlier interview.
He added: “I don’t want to hurt Focus; it’s my own equity.”
At that time, he said Focus had prohibited him from making major personnel decisions at StrategicPoint.
In its statement on Brochu’s departure from StrategicPoint, Focus added biographical information about the managers that it said are now leading the firm.
“Betsey Purinton appears as a regular guest on WJAR/NBC10’s Sunrise Show with Frank Coletta. She writes monthly columns for East Side Monthly, as well as StrategicPoint’s Wealth Management Newsletter. She is the Chairman of The Financial Planning Association of Rhode Island…..Richard J. Anzelone, is a member of the Rhode Island Bar Association, as well as the United States District Court of Rhode Island.”