The SEC recently leveled allegations of securities fraud against Ladenburg’s Chairman and largest holder, Phil Frost, who owns ~34% of Ladenburg’s common equity. The company was struggling before the recent news. Ladenburg has regularly generated net losses to common holders and its balance sheet has become increasingly leveraged. When factoring in Ladenburg’s preferred stock – with a liquidation claim of $425 million ahead of the common – the balance sheet is already in deeply negative equity territory for common holders. Ladenburg has been issuing more debt and more preferred stock to pay out hefty dividends and to support common stock buybacks. This dynamic never ends well. The controversy is likely to lead to further fundamental deterioration; financial firms are sensitive to reputational risks. Plus, the worst may not be over; signs point toward possible criminal charges.