Overview
Cohen Milstein represents employee participants in and beneficiaries of the ACCT Holdings, Inc. Employee Stock Ownership Plan (ESOP) in a class action lawsuit against the ESOP trustee, Miguel Paredes, his firm Prudent Fiduciary Services, Inc. (PFS), the ACCT’s Board of Directors and its members, and the former owners of ACCT for participating in prohibited transactions and breaching their fiduciary duties in violation of Employee Retirement Income Security Act of 1974 (ERISA).
Specifically, plaintiff claims that on December 22, 2021, defendants caused the ESOP to acquire 17,386,919 shares of ACCT common stock from the selling shareholders for an inflated price of $320 million. As fiduciaries to the ESOP, the plaintiff claims, it was incumbent upon them to do adequate due diligence and account for risk factors affecting the value of ACCT and properly evaluate the governance issues in which the ESOP transaction was structured. Instead, the overpriced transaction cost ACCT ESOP participants and beneficiaries millions.
Case Background
Plaintiff’s complaint alleges that prior to the December 22, 2021 ESOP transaction, the employee-participants were not given any information about its terms or the negotiations concerning the price the ESOP would pay for ACCT. In fact, plaintiff alleges the employee-participants who purchased the ACCT Holding stock had no input on the terms negotiated and agreed to by Paredes, PFS and the selling shareholders. Nor did the employees consent to the terms of the ESOP Transaction.
According to financial statements filed by the ESOP with the Department of Labor, the value of the acquired shares was only $48.5 million as of year-end 2021. The ESOP’s subsequent financial statements filed with the Department of Labor show that the ACCT stock the ESOP purchased for $320 million was valued as $65 million as of year-end 2022 and $85 million as of year-end 2023 (the last year for which reported data is available). At no point since the ESOP Transaction has the ESOP reported in its governmental filings the ACCT shares are worth anywhere close to what the ESOP paid for them.
Adequate due diligence and evaluation of the ESOP transaction would have accounted for several risk factors that affected the value of the Company at the time of sale including numerous lawsuits alleging that ACCT violated the Fair Debt Collection Practices Act, the company’s loss of major debt collection clients (e.g., Bank of America) and headwinds in the debt collection industry.
Moreover, a proper evaluation also would have accounted for the governance issues in which the ESOP transaction was structured, such as (i) the Insider Sellers would continue to retain control over the Company; (ii) the Insider Sellers and the Board of Directors retained voting control over the ACCT stock that the ESOP purchased; (iii) almost the entire purchase price was financed through loans which were either guaranteed by the company or issued directly by the company to the ESOP; and (iv) the company was financially burdened with the obligation to make contributions to the ESOP sufficient to make the necessary loan payments, including principal and interest payments to the selling shareholders.
Plaintiff alleges that Paredes and Prudent Fiduciary Services did not give adequate consideration to these and other factors when it approved the inflated price the ESOP paid of $320 million. As the ESOP Trustee, Paredes had a fiduciary duty under ERISA to act prudently and in the sole interest of plan participants. Moreover, the Board of Directors were also fiduciaries of the ESOP.