Cellular company owner accused of misusing ESOP
The U.S. Department of Labor (DOL) filed a lawsuit seeking
to recover losses suffered by participants in the Parrot Cellular Employee
Stock Ownership Plan (ESOP). The suit alleges that the defendants caused or
permitted ESOP to purchase the parent company’s stock for more than fair market
value and that Dennis Webb, principal owner of Entrepreneurial Ventures Inc.
(EVI), which operates Parrot Cellular telephone retail stores in Northern and
Central California and is 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 purchase of EVI stock.
Investigators determined that the ESOP bought 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 him 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 him.
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 violations, the DOL’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.