The deal also creates a $97 million pool of money to keep brokers from leaving. Ferris has about 850 employees and 42 retail branches in the Mid-Atlantic, Michigan and Ohio.
A spokeswoman for Ferris declined to comment on the filing, and a Dain Rauscher spokesman did not return a phone message yesterday. The SEC also declined to comment.
Ferris has suffered financially in the past year as its trading revenue shrank while legal expenses have grown, the regulatory filing shows. The firm reported a net loss of $10.6 million in the fiscal year ended Feb. 29, compared with a profit of $16 million in the previous year, according to newly completed audited financial statements.
Ferris had long been rumored to be on the auction block, but pressure to sell accelerated after it came under increased scrutiny by federal regulators last year. The firm's board met in August to discuss options, and after hiring consultants to conduct a strategic review, concluded it was time to sell, the filing states. It approached six potential buyers, eventually leading to two bids and a decision in February to go with RBC. The other bidder was not identified.
The troubles date to 2003, when Ferris hired Ohio broker Stephen J. Glantz, who brought with him a client, David A. Dadante, who managed a $47 million investment fund based in Ohio. The fund turned out to be a Ponzi scheme, in which money from new investors is used to pay phony returns to earlier investors.
Dadante used a combination of investor money and millions borrowed from Ferris to purchase a 35 percent stake in Duluth, Ga.-based Innotrac Corp. With assistance from Glantz, he placed trades that artificially inflated Innotrac's share price.
The fraud occurred even as Ferris' internal watchdogs were raising concerns. In a May 2003 memo, Ferris' compliance department said it believed Dadante's unusual trading had caused Innotrac's shares to rise and questioned whether the firm was adequately supervising the account and Glantz, The Sun reported last year. Securities firms are required by law to police their brokers and clients to protect the integrity of financial markets.
The memo was distributed to Calvert and other top executives, but the firm allowed Dadante to continue trading into 2004. It wasn't until executives became concerned about Dadante's $18 million debt to the firm that Calvert wrote a memo placing severe restrictions on his trading in Innotrac stock. The fraud wasn't uncovered until late 2005, when investors in Dadante's fund discovered it on their own.
