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San Diego-based First Allied would pay First Montauk 30 percent of the annual commission and fee income generated by First Montauk brokers. First Montauk currently generates $24 million a year in commissions and fees, which would make the purchase price $7.2 million.
"With the competition in the industry and the capital-intensive nature, it's difficult for a firm our size, with its history, to compete," said Victor Kurylak, chief executive officer of First Montauk.
The deal with First Allied is subject to shareholder and regulatory approval. It is expected to be finalized by the end of the year.
First Montauk, with 150 brokers nationwide and 40 employees in Middletown, is an independent brokerage. First Montauk-affiliated stock brokers own their own offices and build their own customer base, while the firm's employees execute transactions and provide regulatory oversight.
First Allied is a subsidiary of Advanced Equities Financial Corp. It has 1,000 financial advisers in 500 locations nationwide. First Montauk plans to use some of its proceeds from the sale to provide an incentive for key brokers to join First Allied.
Meantime, First Allied isn't obligated to hire any of First Montauk's Middletown employees. But Kurylak wouldn't rule out at least some of them being offered jobs at First Allied.
"I anticipate they'll be hiring quite a few of our employees," he said.
First Montauk was founded in 1986 by Herbert Kurinsky and his nephew, William Kurinsky, who purchased a dormant brokerage from a Freeport, N.Y., woman. The company, however, soon encountered regulatory problems.
It was fined in the early 1990s by the National Association of Securities Dealers for selling stocks at unfair and unreasonable prices. And it settled securities fraud charges with the state Division of Consumer Affairs in 2006. As part of the agreement, the Kurinskys resigned.
Kurylak joined the company in 2004, and he said he tightened oversight. The company added a compliance officer and a head of business development in charge of recruiting brokers. And it added an independent director to the board.
Kurylak's efforts to sell the company before have been unsuccessful. First Montauk in 2006 reached a deal to be acquired by Investment Properties of America LLC of Richmond, Va.
But Investment Properties pulled out of the deal more than a year later, in part because the National Association of Securities Dealers had yet to give its approval.
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