WBBQ Employee Stock Ownership Plan Prohibited Transactions ERISA Class Action

This class action concerns a company retirement plan, the WBBQ Employee Stock Ownership Plan (ESOP) that owns stock in W BBQ Holdings, Inc. The complaint alleges that the ESOP trustee, Argent Trust Company, and the company’s controlling managers and shareholders, Herbert, Gregor, and Stuart Wetanson, have violated ERISA by engaging in prohibited transactions and breaching their fiduciary duties.

The class for this action is all participants in the W BBQ Holdings, Inc. Employee Stock Ownership Plan as of July 29, 2016 who were vested in whole or in part under the ESOP’s terms, and those participants’ beneficiaries.

WBBQ is a New York City-based barbeque restaurant chain, founded by Herbert Wetanson and originally owned by the Wetanson family.

The company originally had a profit-sharing plan for its employees, established on January 1, 2015. But the plan was amended so that on January 1, 2016, it turned into an ESOP. Argent was hired as trustee for the transaction at issue in this case, which involved the transfer of some 400,000 shares of WBBQ common stock (around 80% of outstanding shares) from the Wetansons to the ESOP.

The total price of $98,887,309. But the complaint alleges, “According to financial statements filed by the ESOP with the Department of Labor, the value of the acquired shares was only $28,880,000.00 as of year-end 2016… Subsequent financial statements reported even lower values” including “$18,800,000 as of year-end 2019, and $11,246,418 as of December 31, 2020…”

The complaint alleges that certain risk factors for the company were not taken into consideration: rising labor costs and rents, concentration in the expensive location of New York City, and the company’s low margins and limited ability to pass price increases on to consumers.

The complaint also finds fault with certain aspects of the structure of the transaction, such as the following:

• The sellers retained significant control over the company.
• The sellers could issue more shares for themselves, diluting the value of the shares sold to the ESOP.
• The purchase was paid for by loans that were either guaranteed by the company or issued to the ESOP.
• The company had to make significant contributions to the ESOP to make loan repayments.

The sellers promoted the value of the company for their own interests, the complaint alleges, and did not take into consideration the conflicts of interest and the heavy price paid.

The complaint alleges that the transaction “has come under scrutiny by the Department of Labor (‘DOL’), which issued a subpoena to the Seller Defendants’ investment advisory firm (CSG Partners, LLC) in connection with the transaction and three other ESOP transactions. In all four transactions that are the subject of the subpoena, Argent was retained to review the sale and offered an opinion approving the sale.”

The complaint alleges that Argent and the Wetansons engaged in prohibited transactions, which breached their fiduciary duties and resulted in tens of millions of dollars in losses for the ESOP plan participants.

Article Type: Lawsuit
Topic: Employment
Tags: Breach of Fiduciary Duty, ERISA Violations, Employee Stock Ownership Plan (ESOP), Prohibited Transactions, Retirement Plans