A U.S. magistrate judge has ruled that Church of Scientology leader David Miscavige was “actively concealing his whereabouts or evading service” in a federal trafficking lawsuit and declared him officially served in the case.

Judge Julie S. Sneed noted that opposing attorneys had gone to significant lengths to serve Miscavige with the lawsuit filed in Tampa federal court last April. Valeska Paris and husband and wife Gawain and Laura Baxter allege they were trafficked into Scientology as children and forced to work for little or no pay as adults.

See full coverage at Scientology Leader David Miscavige Concealed Whereabouts, Federal Judge Says.

Fiduciary Focus
Shareholder Advocate Winter 2023

With 2022 in the rearview mirror, public pension plans might be inclined to breathe a big sigh of relief. In a year when Pensions & Investments’ top story was the impact of inflation and interest rate hikes on market returns, public pension plans suffered along with other investors, ending a string of positive investment results that had propelled valuations and funding ratios. Time then to turn the page and think about some of the pressing issues pension fund leaders will face in 2023. To guide us, we asked executive directors and general counsel to identify the top challenges from a fiduciary perspective for their public pension systems in the new year.

People and Culture

The pandemic changed the work environment in the U.S. and pension plans were not excepted. Many systems faced hiring difficulties, struggling to fill vacancies ranging from call center positions to associate attorneys. The New York Times reports that while the labor market remains tight, many economists expect more layoffs and fewer job openings in the private sector in the coming months as corporations restructure their operations. This could prove beneficial to public pension plans as they seek to meet their hiring needs.

Post-pandemic, the phenomenon of remote work has become the “new normal.” Job applicants surveyed by the employment search site ZipRecruiter reported that, on average, they would take a 14% pay cut to work remotely. Some pension plans have responded by allowing entire call center operations to be conducted remotely as a way of boosting staff recruitment and retention. Others have allowed many departments to operate in a hybrid fashion, with staff in the office two to three days a week. Finally, there are certain departments for which leaders believe an ethical culture with a proper focus on fiduciary duty can best be maintained by the return of staff full-time in the office.

Issues articulated regarding people and culture were not limited to staffing. Some funds in 2023 will be transitioning to newly appointed or elected trustees, and the integration of these new trustees to the existing board is a chief concern. While new trustees may bring experience, skills and energy to a board, they may not be well versed in trust principles governing the operations of public pension plan and, as such, may not understand the critical importance of fiduciary duty. Appropriate onboarding and a thorough orientation program with a rigorous commitment to fiduciary education can go a long way in acclimating new trustees so that they may understand and be properly integrated into the public pension plan culture.

Cybersecurity

Cybersecurity continues to be a major concern for retirement plans and managing cybersecurity risk is at the forefront for executives and counsel. Cybersecurity risks are rising on both the benefits and investment sides of pension operations. Under benefits operations, plan participants’ financial and personally identifiable information maintained by pension systems are at risk from cyber attack. Investment operations also face risks from attack in their various processes, from capital calls to other aspects of investment transactions.

In 2021, the U.S. Department of Labor’s Employee Benefits Security Administration issued much-anticipated cybersecurity guidance for private sector employee retirement plans, indicating that responsible plan fiduciaries have an obligation to ensure proper mitigation of cybersecurity risks. And public pension systems may be at even more risk than their private plan peers. Bad actors may take advantage of data that is publicly available by virtue of participants’ government employment to further their attempts at identity theft. Public records and FOIA requests have already been used fraudulently. Some public pension plans offer more tempting targets due to antiquated IT systems and limited resources.

Fiduciaries should develop and document their due diligence in implementing cyber-risk-management strategies, including risk assessment and incident response plans and tools to manage cyber situations and crises.

Member Communication and Managing Expectations

Effective communication with plan members is critical to the successful operation of pension plans. One of the biggest challenges cited by one Executive Director is managing the expectations of active and retired system members. For example, retirees may expect or seek cost of living adjustments each year, without understanding that the plan may not be designed or authorized to accommodate such adjustments. Active members, who may have an unreasonable expectation that their pension alone will be sufficient to support them in retirement, need sufficient retirement education to plan adequately for their retirements well in advance. Front and center in 2023 will be the continuing focus of pension systems on how to efficiently interact with their members. We anticipate continuing to see redesigned websites created with members in mind and user-friendly portals that allow members to find information more easily. The best examples include navigation tools designed to offer members, retirees, and employers easy access to information, forms, and publications. Members report that videos and information on benefits planning are helpful tools, as are searchable forms and publications and websites that automatically adjust for use of a smartphone, tablet, or computer. While websites and portals are now the norm, a number of retirees remain committed to receiving print information, thus requiring plans to continue to send mail to members who request it.

Legislative and Regulatory Landscape

Finally, pension plan executives and counsel report being extremely concerned about the growing politicization of their operating environment. For example, the issue of so-called environmental, social, and governance investing seems to be the latest to divide “red” and “blue” states. But prudent fiduciaries know that there are no “red” or “blue” considerations in fiduciary duty. In 2023, trustees, executives, and counsel will need to remain laser-focused on their fiduciary duty to act for the exclusive benefit of members and beneficiaries without regard to the interests of other parties.

Conclusion

As we close the books on a year in which the investing environment was incredibly challenging, investors expect 2023 to be a turbulent year as well. This should not surprise anyone, as we are all aware of the ongoing difficulties in working in the public pension sector.

After a long gestation period, the SEC issued its final rules to address insider trading on December 14, 2022.¹ Investors have been clamoring for reforms of Rule 10b5- 1, which provides an affirmative defense against insider trading claims to corporate executives who use prearranged plans to buy and sell their company’s stock. The SEC agreed with critics who said existing plans were too easily manipulated and adopted the changes unanimously—an accomplishment of note in these politically charged times. While less ambitious than proposed rules announced last year (see discussion in the Winter 2022 Shareholder Advocate), the changes are significant, nonetheless.

The major changes include:

• A “cooling off” period before a Rule 10b5-1 plan can be executed
• Restrictions on multiple Rule 10b5 plans
• Restrictions on single-trade plans
• New disclosure requirements
• Enhanced “good faith” certification requirements

Rule 10b5-1, which was adopted over 20 years ago, provides corporate insiders protection from insider trading claims if their trades were exercised according to a written pre-arranged plan that was devised before the executive was aware of any material non-public information (“MNPI”). In its December 14, 2022 final rule, the SEC explained, “We are concerned that some corporate insiders use Rule 10b5-1 plans in ways that are not consistent with the objectives of the rule, and that harm investors and undermine the integrity of the securities markets.”

In fact, courts have also raised concerns over these plans. For instance, before issuing an important ruling for investors limiting the use of Rule 10b5-1 plans, the Tenth U.S. Circuit Court of Appeals recently recognized such abuses in Indiana Public Retirement System, et. al. v. Pluralsight, Inc., where Cohen Milstein serves as lead counsel. Finding that the “text and history of Rule 10b5-1 shows that such plans can be manipulated easily for personal financial gain,” the court reversed the district court and stripped defendants of their purported “get out of jail free card,” finding that the Rule 10b5-1 trading plan did not rebut an inference of scienter per se (see discussion in the Fall 2022 Shareholder Advocate).

One of the most important changes the SEC has issued in its final rule is the creation of a “cooling off” period. Under the old rules, insiders could make and use a trading plan the very same day, which practically eviscerated its purpose to prevent insider trading. Under the SEC’s new rules, anyone other than an issuer, i.e., the company itself, must wait a certain period of time before executing a trade under a Rule 10b5-1 plan. Directors or officers must wait between 90 and 120 days, depending on the circumstances.² All other persons other than issuers must wait 30 days.

Another change places restrictions on overlapping plans. Previously, traders could create multiple plans and decide later to cancel one that became disadvantageous. Now, the SEC prohibits the use of a Rule 10b5-1 affirmative defense if persons (other than issuers) have multiple overlapping plans.

The SEC amendments also impose new restrictions on “single-trade plans,” which are designed to execute a single trade on one occasion rather than multiple trades over time. Before the change, traders could create multiple single-trade plans; under the new rules, the SEC limits their use to just one plan per 12-month period.

As for the new disclosure requirements, the SEC now requires that the creation, modification, or termination of any directors’ or officers’ Rule 10b5-1 plans be disclosed in quarterly reports (Form 10-Q or Form 10-K as applicable) starting with the financial reports covering the first quarter of 2023. Under the old rules, Rule 10b5-1 plans did not need to be disclosed, which kept investors from knowing whether suspicious trades by officers or directors were made pursuant to a plan or not.

In addition, the SEC now requires companies to disclose whether they have an insider trading policy and to provide it annually as an exhibit. The SEC explained that seeing the details of such policies and whether they are merely perfunctory declarations or ones with effective controls will give investors important information.³

Finally, the SEC heightened the “good faith” certification requirements. While the SEC currently requires that plans be entered in good faith, the new rule requires a certification that the plans have been exercised and operated in good faith. The SEC now requires traders to certify that they both entered in and “acted in good faith with respect to” the plan.

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¹ The rules were announced on December 14, 2022 but will not become effective until February 27, 2023.

² The SEC now requires directors or officers to wait “until the later of (1) 90 days after the adoption of the Rule 10b5-1 plan or (2) two business days following the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted or, for foreign private issuers, in a Form 20-F or Form 6-K that discloses the issuer’s financial results (but in any event, the required cooling-off period is subject to a maximum of 120 days after adoption of the plan).”

³ “The thoroughness and precision of such policies and procedures may help investors to understand whether they will be successfully implemented…An investor might reasonably conclude that an issuer adopting a policy generally prohibiting insider trading, but without disclosing how it prevents the unlawful communication of and trading on material nonpublic information, provides fewer such assurances to investors than an issuer that has developed and disclosed more particular and thorough policies and procedures.”

By Kate Fitzgerald

Holding large, formidable corporations accountable to achieve economic and social justice for our client—even if it takes decades—is a hallmark of our work at Cohen Milstein.

No better example is our representation of 11 Indonesian citizens in Doe, Aceh, Indonesia v. ExxonMobil Corporation (D.D.C.). For more than 21 years, the plaintiffs in this high-profile cross-border lawsuit have sought justice from ExxonMobil Corporation for human rights abuses they allegedly suffered at the hands of ExxonMobil’s security personnel in Aceh, Indonesia.

On March 24, 2023, they will finally get their day in court, when a U.S. federal jury trial is set to start.

Originally filed in 2001, the lawsuit alleges that ExxonMobil used Indonesian soldiers to provide security at the company’s sprawling natural gas operation in the largely rural Aceh province. The lawsuit also alleges that these same soldiers physically abused, sexually assaulted, tortured, or murdered plaintiffs or family members who lived in the surrounding villages.

The federal lawsuit addresses many novel issues of law and jurisdiction. The D.C. Circuit Court of Appeals reviewed the case twice, in 2007 and 2011, ultimately concluding that plaintiffs could move forward to prove that ExxonMobil bore liability for these atrocities under Indonesian law. In 2007, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the views of the executive branch on ExxonMobil’s petition for certiorari, which subsequently led the Court to deny the petition.

Despite years of aggressive defense, during which ExxonMobil moved to stay the case at least seven times at the district court, court of appeals, and Supreme Court levels, plaintiffs persevered. All the while, the litigants grew older.

Then, as the world quarantined against COVID-19, the district court, seemingly inspired by technological innovations widely adopted during the pandemic, agreed that plaintiffs and their eyewitnesses could provide testimony from the other side of the world via videoconference. At summary judgment, plaintiffs submitted these long-distance depositions, along with close to 400 exhibits, to support their claims.

On August 2, 2022, the district court issued a detailed and pointed 86-page opinion denying ExxonMobil Corporation’s motion for summary judgment, stating that “with only limited exceptions, defendants remaining arguments—about causation, quantifiable loss, ExxonMobil’s liability, and due process—are entirely meritless.” The court repeatedly found that ExxonMobil’s characterizations of the evidence was “wrong” or “simply wrong.” Furthermore, the court published for the first time the testimony of the victims and witnesses about the horror. After almost every account, the court stated, a reasonable jury could conclude the “connection between the soldier’s wrongdoing and his employment relationship with defendants.”

Agnieszka Fryszman, co-chair of Cohen Milstein’s Human Rights practice, and her small but dedicated legal team have tenaciously pursued this hard-fought litigation against a deep-pocketed defense, handling discovery, trial court briefing, appellate briefing, appeals court argument, and Supreme Court practice.

The Winter 2023 issue of the Shareholder Advocate includes:

• In Slack Case, Supreme Court to Weigh Narrowing Liability for Companies that Go Public via Direct Listing – Will Wilder
• Heeding Investor Advocates, SEC Tightens Rules for Insider Stock Trading Plans – Kate Nahapetian
• Human Rights Practice Readies for Trial Against ExxonMobil for Alleges Abuses in Indonesia – Kate Fitzgerald
• Securities Litigation 101: The Role of the Lead Plaintiff – Christopher Lometti and Richard E. Lorant
• Fiduciary Focus: Top of Mind Issues for 2023 – Suzanne M. Dugan

Download the Winter 2023 edition of the Shareholder Advocate (PDF).

This term, the Supreme Court will hear oral arguments in Slack v. Pirani, a case that could have major implications for investors in companies that go public via direct listings.

The Supreme Court recently agreed to hear Slack Technologies v. Fiyyaz Pirani, a federal securities class action case arising from Slack Technologies’ (“Slack”) 2019 direct listing on the New York Stock Exchange. The case presents novel questions about standing under the Securities Act of 1933 (“Securities Act”) and could have significant ramifications for investors who purchase securities through direct listings and other alternative forms of public offerings by creating a dangerous loophole in the Securities Act.

Unlike companies that go public via initial public offerings, a privately held company that undertakes a direct listing does not issue new shares. Instead, it files a registration statement to allow existing shareholders to sell their shares directly to the public on an exchange. By filing the registration statement, a direct listing also creates a market for existing holders to resell unregistered shares in the company that meet the SEC holding requirements for exempt securities. Slack, a technology company that offers a popular instant messaging platform for businesses and organizations, opted to go public through a direct listing on the New York Stock Exchange in June 2019.

By going public through a direct listing, Slack simultaneously offered a mix of registered and unregistered securities to the public on the New York Stock Exchange. Plaintiff Fiyyaz Pirani bought shares in Slack through the direct listing on the day it went public and throughout the next few months. Pirani alleges that Slack’s registration statement was misleading because it failed to disclose important information about its service disruption policy. In a motion to dismiss, Slack argued that Pirani lacked standing to sue under Section 11 of the Securities Act because he could not “trace” the shares he purchased back to the shares offered through the misleading registration statement—and further, because the registered and unregistered shares were identical, Pirani could not definitively prove that the shares he purchased were registered shares subject to liability under Section 11.

The district court found that Pirani had standing, and the Ninth Circuit affirmed. The Ninth Circuit concluded that because the unregistered shares could not have been publicly sold without the registration statement for the registered shares to create the market, the “traceability” rule was inapplicable, and both the unregistered and registered shares were “such securities” subject to Section 11 of the Securities Act. In support of this finding, the Ninth Circuit looked to the Securities Act’s legislative history and the federal securities laws’ underlying purpose of protecting investors and preventing fraud.

In their petition to the Supreme Court for a writ of certiorari, Slack argued that the Ninth Circuit opinion is not supported by the text of the Securities Act or precedent and significantly expands Securities Act liability for unregistered shares. They argue that allowing investors to sue on this type of direct listing for shares that may not have been registered could extend liability to almost any sale of an unregistered security, such as a sale made by a corporate insider after an IPO “lockup” period, which would disincentivize companies from going public.

Slack v. Pirani could have significant ramifications for investors. While fewer than 20 companies have gone public through a direct listing since they were authorized in 2018, a December 2022 SEC rule change relaxing opening auction price restrictions is expected to increase their popularity. In addition, a Supreme Court ruling for Slack in this case could essentially shield companies going public through a direct listing from any Section 11 liability, as many shareholders would not be able to prove that the shares they purchased were registered. This would create a dangerous loophole in the Securities Act that could further incentivize companies to go public through direct listings and skirt Section 11 liability.

The case could also have potential ramifications beyond the direct listing context. The Supreme Court hears relatively few securities cases and has not heard any cases arising from the Securities Act since the confirmation of Justice Amy Coney Barrett cemented a 6-3 conservative majority on the Court. The Court could use this case to change standing requirements under the Securities Act in other ways that could affect shareholders in more traditional public offerings like IPOs and Special Purpose Acquisition Companies, or SPACs.

The Supreme Court will hear oral arguments in Slack v. Pirani sometime later this year. Since the case could disrupt federal securities law in a variety of ways, investors are urged to follow the briefing and arguments in the coming months.

In Far-Reaching Decision, Delaware Chancery Court Rules that Officers Who Engage in Sexual Harassment Act in Bad Faith and may be Liable for Acts of Disloyalty In a decision with important implications for businesses and stockholders nationwide, a Delaware Chancery Court judge ruled yesterday that corporate officers may be held liable for failing to oversee misconduct that harms a company and for acting in bad faith – the first time a Delaware court has extended duties of oversight beyond the boardroom and into the C-suite. Significantly, the decision by Vice Chancellor Travis Laster involved the former Global Chief People Officer of McDonald’s, who is not only accused of intentionally ignoring a corporate culture of sexual misconduct and harassment, but of acting in bad faith by repeatedly engaging in sexual misconduct himself. The underlying fact pattern is all too familiar: a corporate executive engages in sexual harassment and gets a slap on the wrist and “final warning,” despite the company’s supposed zero-tolerance policy for such misconduct. Vice Chancellor Laster determined that claims against McDonald’s former Global Chief People Officer David Fairhurst could proceed because, “[t]he duty of good faith requires that a fiduciary subjectively act in the best interests of the entity. When engaging in sexual harassment, the harasser engages in reprehensible conduct for selfish reasons. By doing so, the fiduciary acts in bad faith and breaches the duty of loyalty.” It’s a Good Time To Extend Caremark Claims to Corporate Officers Legally, the decision is largely devoted to the logic underlying liability for corporate officers’ acts of bad faith and also their failure to exercise oversight on behalf of the company, also known as a Caremark claim. Caremark established the standards of oversight liability for directors as a two prong test, which requires a plaintiff to either allege facts showing that directors failed to implement a reporting system on matters of critical importance to the company; or, after adopting a necessary reporting system, failed to monitor for potential risks of a corporate trauma that required their attention. Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).  Under the latter portion of the test, a stockholder must allege that directors failed to act, even after the reporting system generated “red flags.” VC Laster concluded that the same fiduciary duty applies to corporate officers, noting that they are responsible for managing the day-to-day affairs of the company and thus better situated to provide relevant, timely information to the board. The decision notes: “officers are far more able to spot problems than part-time directors who meet a handful of times a year.” (at 27). Accordingly, if an officer fails to share information about harm to the company with the board, the directors themselves may want to sue the officer for a breach of duty to the company. And, if the board has a potential claim, so too would a stockholder in derivative litigation, in which the shareholder sues for fiduciary breaches in the company’s stead. Sexual Harassment Claims, A Party Atmosphere, Fear of Retaliation, EEOC Charges, and a 30-City Walkout at McDonald’s VC Laster applied this newly-carved-out oversight theory of officer liability to McDonald’s Fairhurst, who served as the company’s Chief Global People Officer from 2015 until McDonald’s terminated him in 2019. As alleged in the complaint, Fairhurst had “day-to-day responsibility for ensuring” that the company provided a “safe and respectful workplace” for 200,000 people working at its corporate-owned restaurants and two million more employed by McDonald’s franchises – 55% of them women. Instead, he and then-CEO Steve Easterbrook turned the McDonald’s Chicago headquarters into a “boys’ club” where they and other executives sexually harassed female employees and HR officials ignored women’s reports of inappropriate conduct. They behaved this way despite a headline-grabbing 30-city employee walkout in 2016 to bring attention to more than a dozen complaints filed with the Equal Employment Opportunity Commission, a one-day strike by workers in 2018 after another flurry of EEOC complaints, and a letter of inquiry from a U.S. Senator. The opinion concludes that Fairhurst was aware of incidents of sexual harassment and misconduct at the company as early as 2016. In addition, Fairhurst acted in bad faith by consciously ignoring those red flags, thereby acting with scienter. VC Laster highlighted the fact that not only did Fairhurst himself engage in sexual misconduct, but that he did so after receiving a final notice that such behavior was unacceptable. Therefore, VC Laster found it is reasonable to conclude that Fairhurst ignored the sexual misconduct of others and party atmosphere more broadly, particularly since Fairhurst and Easterbrook, who took over as CEO in 2015, actively fostered the culture. The last four pages of the decision are perhaps the most significant for officer liability in the context of sexual harassment. VC Laster axiomatically wrote: “sexual harassment is bad faith conduct. Bad faith conduct is disloyal conduct. Disloyal conduct is actionable.” Thus, he ruled, the stockholders had properly stated a claim that Fairhurst acted in bad faith and disloyally to the company. The decision notes that an officer cannot act in good faith while violating company policy, breaking the law, and exposing the company to liability. These features are hallmarks of sexual harassment and discrimination based derivative lawsuits that Cohen Milstein has worked on across the country, notably against such companies as Wynn Resorts, Alphabet, L Brands, and Pinterest. Going forward, VC Laster’s ruling will be relied upon not only to support the viability of cases where officers and directors materially support toxic, inequitable workplaces, but also where officers fail to protect a company from harm based on their own officer oversight duties. Julie Goldsmith Reiser is a partner at Cohen Milstein and co-chair of the firm’s Securities Litigation & Investor Protection practice, which Law360 named this month as one of its 2022 Securities Groups of the Year.

Employee Stock Ownership Plans (ESOPs) are retirement plans that are set up to invest solely in the stock of the employer.

Among other things, ESOPs offer the company and employee participants various tax benefits, making them “qualified” plans that are regulated by the Employee Retirement Income Security Act (ERISA). If managed properly, and in accordance with ERISA, ESOPs can be help employees save for retirement.

Traditionally used by smaller, privately held companies, ESOPs can be used by larger, publicly held companies and can complement 401(k) retirement plans. Similar to the 401(k)-vesting period, an ESOP participant earns an increased portion of company shares in the plan for every year of service. When an employee retires or resigns, they can “cash out” of the ESOP and claim their nest egg.

ESOPS: Vulnerabilities and Potential for Abuse

Unfortunately, ESOPs are vulnerable to abuse that is difficult for participants to detect. ESOPs provide a mechanism that allows an owner to transfer ownership of a company to its employees. While Congress permits ESOPs to encourage employee ownership of companies, it was aware that owners can use ESOPs to receive more money for their interest in the company than it’s actually worth. To protect employees from these abuses, Congress put stringent requirements on employees that choose to use ESOPs.

ERISA requires that ESOPs be managed prudently and with undivided loyalty to the employee-ESOP participant, and imposes strict “prohibited transaction” restrictions on owners wishing to use an ESOP for their employees.

Employees and ESOP participants suffer the consequences of an ESOP overpaying for a company. Overpayment not only reduces the amount of retirement savings a participant will ultimately earn, but also can put a strain on a company’s financial health that may imperil job security.

Fortunately, ESOP-participants that are harmed by a mismanaged ESOP can seek redress and assert their rights under ERISA.

Real Life Examples

Case in point. We are representing approximately 750 employee ESOP beneficiaries of the Casino Queen Hotel & Casino, the former famed riverboat casino which moved on land in 2007 to East St. Louis, Illinois.

In the complaint, we allege that the owners of Casino Queen tried to sell the casino to third party buyers for years. Unsuccessful, they decided to create their own buyer and established the Casino Queen ESOP for the purpose of buying 100% of the company’s outstanding common stock for $170 million.

The Complaint explains how, employees were told initially that the ESOP was a great opportunity that would lead to the creation of greater wealth, this alluring promise was revealed to be a mere illusion.

The Complaint alleges numerous ERISA violations, including that the ESOP’s trustee concealed that the ESOP had significantly overpaid for the company stock in 2012, and that they engaged in other ERISA violations, including selling all the casino’s real property out from under the ESOP.

The lawsuit names as Defendants several people who profited handsomely from the sale of the casino.

We also represent the employees of the following private companies in ESOP litigation. Plaintiffs’ allegations in those cases are summarized below:

• Western Milling, an agribusiness, specializing in fertilizer, pesticides, seeds, and animal feed formulas, where the Kruse family, among others, formed Western Milling ESOP to buy 100% of outstanding Kruse-Western stock for over $244 million. Just two months after the transaction, Kruse-Western stock was valued at just 10% of what it was previously valued.
• World Travel, a full-service concierge travel management company. In 2017, the founders of the company created the ESOP and then sold 100% of their World Travel stock to the newly created ESOP at an above-market price. Further, despite selling 100% of their stock ownership and touting that the company is 100% employee owned on its website, the founders have retained full control of the company.
• Triad Manufacturing, a vertically integrated design and manufacturing company that builds retail store environments, nationally and globally.  Allegedly the owners of the company and the ESOP’s Trustee, GreatBanc Trust Company, breached their fiduciary duties by selling 100% of the owner’s company stock to the newly created Triad ESOP. Approximately two weeks later, Triad’s stock dropped nearly 97%.
• Envision Radiology, an outpatient radiology company with locations in five states. Allegedly, the original owners and top ex of Envision Management Holding, Inc. as well as Argent Trust Company (which served as the trustee to the ESOP), breached their fiduciary duties to the ESOP and engaged in prohibited transactions in connection with the sale of Envision company stock to the newly created Envision Management Holding, Inc. Employee Stock Ownership Plan in 2017.
• W BBQ Holdings, Inc., the owner of Dallas BBQ, a restaurant and catering chain in New York City that serves low-cost barbeque and beverages. Allegedly, the controlling members and shareholders of W BBQ Holdings and the trustee of the WBBQ ESOP, caused the ESOP to engage in transactions that are prohibited under ERISA and breached their fiduciary duties to the ESOP in connection with the sale of the company to the ESOP at a dramatically inflated price over fair market value.

Early Warning Signs

While early warning signs are hard to detect, there are certain themes these cases have in common.

• An ESOP is quickly created
• No to little information is given to employees about the ESOP and projected benefits
• Employees have no voice, no vote in the creation of the ESOP or the selection of the trustee
• The ESOP overpays, i.e., over fair market value, for shares of the company stock or other company assets
• Employees have no voice, no vote in the ESOP’s transactions

Employees are best served when they understand the risks and rewards of ESOPs. Please contact us if you have concerns about your company’s ESOP.

Michelle C. Yau, Esq. – myau@cohenmilstein.com

Kai Richter, Esq. – krichter@cohenmilstein.com

Daniel R. Sutter, Esq. – dsutter@cohenmilstein.com

Ryan Wheeler, Esq. – rwheeler@cohenmilstein.com

Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W., Suite 500
Washington, D.C. 20005
Telephone: 888-240-0775 or 202-408-4600

Sharon K. Robertson will moderate a panel at the American Antitrust Institute’s (AAI) annual Private Antitrust Enforcement Conference on November 9. The panel, “Beneficial Coordination: When Public and Private Enforcers Collaborate,” will explore key issues, challenges, and best practices in the coordination of public and private antitrust enforcement.

Now in its 16th year, the Private Antitrust Enforcement Conference features a series of panels on topics relevant to of interest to the antitrust community. Experts and thought leaders in enforcement, advocacy, and academia serve as panelists.

Visit the AAI’s event page for a full agenda and information on registration.

A federal judge in Nevada is allowing most of a putative class action against the hospitality giant MGM Resorts International to move forward, rejecting the company’s bid to escape claims that it mishandled customers’ personal data and essentially let hackers steal that information in 2019.

The ruling on Wednesday, by U.S. District Judge Gloria M. Navarro, will force MGM Resorts to face allegations of negligence and breach of contract, as well as claims that it violated a host of consumer protection statutes, while sparing it from an accusation of negligent misinterpretation.

In a 43-page decision, Judge Navarro rejected the company’s stance that it cannot be accused of negligence since the consumers suffered only financial harm, noting that hackers stole their names, addresses, contact information, dates of birth and, for some, their government-issued ID numbers. That negates MGM’s argument under the so-called economic loss doctrine, the judge held, calling it “difficult to conceive how the dissemination of an individual’s [personally identifiable information] does not necessarily diminish their control over their digital and physical identity.”

. . .

The plaintiffs are represented by Miles N. Clark of the Law Offices of Miles N. Clark LLC, Don Springmeyer of Kemp Jones LLP, E. Michelle Drake, Michael Dell’Angelo, Jon Lambiras and Reginald Streater of Berger Montague PC, Douglas J. McNamara, Andrew N. Friedman, Geoffrey A. Graber and Paul Stephan of Cohen Milstein Sellers & Toll PLLC, David M. Berger and Eric H. Gibbs of Gibbs Law Group LLP, and by John A. Yanchunis, Jean S. Martin and Marcio Valladares of Morgan & Morgan Complex Litigation Group.

Read the complete article on Law360.