Havens Steel Hit with ESOP Lawsuit

December 1, 2004 (PLANSPONSOR.com) - Eight current and former employees of Havens Steel Co. have charged that Havens Steel Co.'s employee stock ownership plan administrator breached its fiduciary duty after Havens' bankruptcy wiped out participants ESOP assets.

The suit alleges that four officials of the Kansas City-based steel fabricator paid themselves large bonuses and concentrated the ESOP’s investments in Havens stock “even after they knew that it was not a prudent investment,” according to a Kansas City Star report. Named as defendants are Havens’ former president and chief executive officer Kenneth McCullough, and three other former Havens executives: Jesse Bechtold, Don Price and Thomas Collins. All four were members of Havens’ ESOP Committee and served on the company’s board.

Shortly after McCullough informed plan participants of the company’s record $228 million in revenue in 2001, according to the suit, he and other company executives awarded themselves bonuses of more than $2.3 million, including $513,060 for McCullough.

After that, the suit charged, the defendants directed that the $2.67 million the company contributed to the ESOP in early 2002 be used to buy company stock. This was done, the plaintiffs allege, even though the defendants knew the company’s 2002 performance “was going to be in stark contrast with the results they had announced in 2001.”

The participant lawsuit, filed in Kansas City federal court, asks a judge to declare the case a class-action status on behalf of some 500 current and former Havens employees who participated in the ESOP, which two years ago was worth nearly $40 million.

Internal Revenue Service documents indicate that at the beginning of 2002, assets in Havens’ ESOP totaled nearly $48 million, according to the Star. By the end of the year, the total had fallen to $39.6 million. The company’s bankruptcy filing rendered the investments worthless.