Commitments and Contingencies

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Litigation

The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating the Company’s businesses, including the risk of class action lawsuits. The Company’s pending legal and regulatory actions include proceedings specific to the Company and others generally applicable to business practices in the industries in which the Company operates. The Company is also subject to litigation arising out of the Company’s general business activities such as the Company’s contractual and employment relationships. In addition, the Company is subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and other authorities. Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on the Company’s business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, the Company could suffer significant reputational harm, which could have an adverse effect on the Company’s business, financial condition or results of operations.

Because the Company operates in a highly regulated industry, the Company and its subsidiaries are regularly subject to examinations by the SEC and other relevant regulators. As disclosed since the fall of 2020, in July 2020, AMI received an examination report from the SEC’s Division of Examinations requesting that AMI and certain subsidiaries of AFHI take corrective actions. The Company’s subsidiaries also received related subpoenas from the SEC Division of Enforcement for production of documents and testimony. The matter at issue concerns allegedly inadequate disclosure of potential conflicts of interest by AMI between 2016 and 2021. The Company is in discussions with the SEC enforcement staff regarding the framework for a possible resolution of this matter. After discussions with the SEC staff, the Company recorded a $20,000 accrual in its financial statements in March 2023. Changes in the accrual may be required in future periods as discussions with the SEC continue and additional information becomes available. However, there can be no assurance that the Company will be successful in reaching an agreement with the SEC. There have been no changes with respect to this accrual as of June 30, 2023.

In the opinion of management, after discussions with legal counsel, the ultimate resolution of the pending regulatory action will not have a material adverse effect on business operations of the Company.

Other Contingencies

In connection with the acquisition of Adhesion Wealth, the Company may incur contingent compensation obligations with respect to certain former Adhesion Wealth employees based upon the achievement of certain milestones and their continued employment with the Company. The potential payouts were indeterminable at the balance sheet date and as such, no amounts have been accrued or disclosed in the accompanying consolidated financial statements with respect to these contingencies.