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Overvalued Airline Cost ESOP Nearly $200M, Workers Say

Law360

March 1, 2022

A group of employees at Western Global Airlines has filed a proposed class action in Delaware federal court accusing the cargo airline’s owners of overvaluing the company when they sold shares to the employee stock ownership plan, causing the plan to lose $188 million over two months.

The employees said in their complaint Monday that James and Carmit Neff, the husband and wife who founded Western Global in 2013, created an employee stock ownership plan in June 2020 to buy 37.5% of the company. The plan purchased the stake for $510 million, placing a total value on Western Global of $1.3 billion, which the employees said is at least 20 times higher than it should have been.

The employees say the Neffs and Prudent Fiduciary Services LLC, the trustee of the employee stock ownership plan, violated their fiduciary duties under the Employee Retirement Income Security Act by self-dealing and not giving the employees seats on the board for their shares.

The employees also said that the Neffs financed the deal by borrowing money from the company, which forced Western Global to issue over $400 million in bonds at an interest rate above 10%. The debt will cost nearly $40 million each year to service, according to the complaint, which is virtually all the $46 million in earnings that Western Global has averaged over the last five years.

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The proposed class is represented by Carmella P. Keener of Cooch and Taylor PA; Peter K. Stris, Rachana A. Pathak, Victor O’Connell and John Stokes of Stris & Maher LLP; Michelle C. Yau and Daniel R. Sutter of Cohen Milstein Sellers & Toll PLLC; and Paul J. Lukas, Brandon T. McDonough, Brock J. Specht and Jacob T. Schutz of Nichols Kaster PLLP.

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