Magazine

UpFront | Published in July 2012

Underhanded and Overvalued

By Rebecca Moore | July 2012

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.