This head-spinning class action involves an employee stock ownership plan (ESOP) for employees of Western Global Airlines, Inc. and a stock purchase of 37.5% of private Western Global stock. The complaint alleges that the defendants bought the stock at an inflated price, saddled the company with enormous debt to pay for it, and forced employees to invest their retirement savings at the inflated price.
The defendants include Prudent Fiduciary Services, LLC, the trustee for the ESOP, and its owner; Western Global Airlines, Inc., its Board of Directors, and the two sellers, James K. Neff and Carmit P. Neff.
The class for this action is all participants in the Western Global ESOP on or after June 6, 2020, who vested under the terms of the ESOP, and these participants’ beneficiaries.
The Western Global Airlines, Inc. Employee Stock Ownership Plan was created in June 2020, according to the complaint, “for the purpose of purchasing 37.5% of the Sellers private Western Global stock. It then bought 375,000 shares of stock for $510 million, or $1,360 per share, from two sellers: James K. Neff, founder and CEO of the company, and Carmit P. Neff.” Both were members of the Western Global Board of Directors.
The brand-new ESOP had no money to buy this stock, so it borrowed from Western Global, the complaint claims. However, Western Global did not actually have $510 million to lend for the purchase of the stock, the complaint says, so it issued around $350 million worth of junk bonds.
According to the complaint, the initial rate of interest was 8.25%, but it did not find enough investors at this rate, so it raised the rate above 9%. The complaint claims, “Ultimately third-party demand for the junk bonds was insufficient to fund the ESOP Transaction and Jim Neff ended up purchasing a majority of the junk bonds.”
The complaint alleges, “As of December 2020, the Company reported that the shares were worth only $328 million.”
“There is no recognized market for private stock in a company like Western Global,” the complaint alleges, “so the price the ESOP paid for the Sellers’ stock was determined by a valuation report.” The complaint alleges that “the valuation report … relied upon unreliable and unrealistic projections of Western Global’s future cash flows and earnings to justify the $510 million purchase price.”
According to the complaint, “since the Transaction, the entirety of the retirement contributions that Western Global has made to the ESOP accounts have been used” to pay down the loan for the stock purchase.
Prudent Fiduciary Services was picked by the Board members as the trustee for the ESOP and purportedly “negotiated” and then approved the ESOP stock purchase.
The counts include violations of the Employee Retirement Income Security Act (ERISA), including breach of fiduciary duties and engaging in prohibited transactions.
Article Type: LawsuitTopic: Investments
Most Recent Case Event
Western Global Airlines ESOP Stock Purchase ERISA Violations Complaint
December 13, 2021
This head-spinning class action involves an employee stock ownership plan (ESOP) for employees of Western Global Airlines, Inc. and a stock purchase of 37.5% of private Western Global stock. The complaint alleges that the defendants bought the stock at an inflated price, saddled the company with enormous debt to pay for it, and forced employees to invest their retirement savings at the inflated price.
Western Global Airlines ESOP Stock Purchase ERISA Violations ComplaintCase Event History
Western Global Airlines ESOP Stock Purchase ERISA Violations Complaint
December 13, 2021
This head-spinning class action involves an employee stock ownership plan (ESOP) for employees of Western Global Airlines, Inc. and a stock purchase of 37.5% of private Western Global stock. The complaint alleges that the defendants bought the stock at an inflated price, saddled the company with enormous debt to pay for it, and forced employees to invest their retirement savings at the inflated price.
Western Global Airlines ESOP Stock Purchase ERISA Violations Complaint