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Compliance April 25, 2012
Cellular Company Owner Accused of Misusing ESOP
April 25, 2012 (PLANSPONSOR.com) - The U.S. Department of Labor filed a lawsuit seeking to recover losses suffered by participants in the Parrot Cellular Employee Stock Ownership Plan (ESOP).
Reported by Rebecca Moore
The suit alleges that the defendants caused or permitted the ESOP to purchase the parent company’s stock for more than fair market value and that Dennis Webb, the principal owner of Entrepreneurial Ventures Inc., which operates Parrot Cellular telephone retail stores in northern and central California and is the sponsor of the retirement plan, enriched himself by millions of dollars at the expense of the plan and its participants.
In addition to Webb, the suit names as defendants EVI executives Matthew Fidiam and J. Robert Gallucci and Consulting Fiduciaries Inc., an Illinois company that served as the independent fiduciary and investment manager for the ESOP during a November 2002 stock purchase by the ESOP.
Investigators determined that the ESOP purchased approximately 90% of EVI stock for more than $28 million. Around the same time as the stock purchase, EVI also set aside $4 million pursuant to a deferred compensation agreement with Webb and entered into a second executive compensation agreement with Webb for $12 million. The department alleges in the suit that a reasonable value for the company as of November 2002 was far less than the amounts paid for the company stock and the total deferred compensation agreements entered into with Webb.
The defendants allegedly violated the Employee Retirement Income Security Act (ERISA) by rejecting their fiduciary duties of loyalty and prudence to the plan, engaging in self-dealing, permitting or engaging in prohibited transactions, and failing to monitor the performance of the plan’s appraiser. In addition to seeking the recovery of all losses to the ESOP resulting from the above violations, the Labor Department’s suit seeks the disgorgement of unjust profits from Webb that he received from the two deferred compensation agreements and from his sale of EVI stock to the ESOP.