(CN) - Investors in financial brokerage company BGC Partners are not happy with the control that former parent company Cantor Fitzgerald exerts over the subsidiary, claiming in court that Cantor's incestuous dealings with the company have been detrimental to the BGCP and to them.
"BGCP has a demonstrated history of engaging in transactions with Cantor Fitzgerald that excessively favorable to Cantor Fitzgerald and unfair to its public shareholders," the derivative complaint states.
Cantor allegedly forced BGCP to sell shares of its stock to Cantor at an 8.75 percent interest rate, much higher than the rates on public bond offerings. The shares were then converted into Class A stocks which carry one vote each, according to the complaint.
The company has also been prevented from entering into "capped call" transactions with Cantor, while its Chairman and CEO Change in Control Agreement was amended so the current CEO would receive windfall payments if there is a change in the control of BGCP.
The company's executive management also overlaps significantly with Cantor's. According to the complaint most of the board is staffed with Cantor board members. While there are four independent directors who serve as an audit committee, their ability to perform this function is questionable because the committee rarely disputes Cantor member's wishes, plaintiffs claim.
"Cantor Fitzgerald by its own admission exercises complete control over the nomination and election of all directors," the complaint states.
"Cantor Fitzgerald has demonstrated it has no qualms about using its domination and control over BGCP and its board to benefit itself at the expense of the company and its public shareholders."
The audit committee is expected to serve as a "independent" and "fact-delegated" decision making group, but it "appears to have done little more than rubber-stamp" Cantor plans.
"Our agreements and other arrangements with Cantor may be amended upon agreement of the parties to those agreements upon approval of our audit committee. During the time that we are controlled by Cantor, Cantor may be able to require us to agree to amendments to these agreements. We may not be able to resolve potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party," the company's Form 10-K states.
Cantor Fitzgerald merged eSpeed, its electronic trading market place for government bonds, with BGC, its dealer voice brokerage business, to become BGCP in 2008. It is a controlled subsidiary of Cantor Fitzgerald.
Investors are represented by Carl Stine and Joshua Saltzman Wolf Popper LLP.