The U.S. Department of Labor filed a lawsuit in the U.S. District Court for the Northern District of California in an attempt to recover losses from participants in the Parrot Cellular Employee Stock Ownership Plan.
The suit comes after an investigation conducted by DOL's Employee Benefits Security Administration that discovered violations under the Employee Retirement Income Security Act. According to the suit, the defendant is Dennis Webb, the principal owner of Entrepreneurial Ventures Inc., which operates Parrot Cellular telephone retail stores in Northern and Central California and sponsors the worker retirement plan. Other defendants include Matthew Fidiam and J. Robert Gallucci, EVI executives, along with Consulting Fiduciaries Inc., an Illinois-based company that acted as the independent fiduciary and investment manager for the ESOP when it bought the stock in November 2002.
The suit claims the defendants caused or permitted the ESOP to buy EVI stock above fair market value, and Webb padded his pockets by millions of dollars at the expense of the plan and its participants.
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"Plan officials are required by law to manage the ESOP in a careful, prudent manner and to act solely to benefit the plan's participants," says Jean Ackerman, director of EBSA's San Francisco Regional Office, which oversaw the investigation. "This action underscores the Department's commitment to protect the benefits that employers promise to their employees."
Investigators say the ESOP purchased about 90 percent of EVI stock for more than $28 million, and near the same time the stock was bought, EVI put aside $4 million pursuant to a deferred compensation agreement with Webb and committed to a second executive compensation agreement with Webb for $12 million. In the suit, the department maintains that a reasonable value for the company as of November 2002 was much less than the amounts paid for the company stock and the total deferred compensation agreements entered into with Webb.
Under ERISA, the defendants violated the terms by rejecting their fiduciary duties of loyalty and prudence to the plan, engaging in self-dealing, allowing or participating in forbidden transactions, and not monitoring the performance of the plan's appraiser. Along with requesting the recovery of all losses, the DOL is seeking the disgorgement of unjust profits Webb received from the two deferred compensation agreements and the sale of EVI stock to the ESOP.
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