A lawsuit charging PR guru Mike Sitrick with "self-dealing" and a breach of fiduciary responsibilities as trustee of the former Sitrick Employee Stock Ownership Plan was filed April 15 by Richard Wool – who headed Sitrick and Company's New York office – and the ESOP in U.S. District Court (Central District of California).
Wool contends the disappearance of almost 90 percent of the ESOP's original market value was "neither coincidence nor result of market risk."
The complaint charges that Sitrick "decided that the ESOP would receive too much from the sale of the company and conceived a plan to misappropriate and transfer to himself, certain of the corporate assets through its income stream."
It alleges that Sitrick carried out the plan by declaring Sitrick & Co.'s "income stream the result of 'personal goodwill' as intangible assets comprising of Sitrick's personal business relationships, reputation, contacts with public figures, referral networks, and media contacts."
The suit claims that between 2004 and '08, Sitrick entered into a verbal or written royalty agreement with S&C under which the firm was granted the "nonexclusive and revocable right to use Sitrick's personal goodwill for an annual royalty payment to Sitrick to be agreed upon annually."
The complaint charges that Sitrick concealed the personal goodwill transaction and the royalty payments from employees and ESOP participants. The info was not made public until '09 in a Securities and Exchange Commission by S&C new corporate parent, Resources Connection Inc, according to the suit. The suit says the document show that S&C spent $3.4M in '08 and $2.6M during the first-half of '09 for royalty payments.
The complaint alleges that of the more than $92M in cash, stock and earnouts earmarked for the '09 acquisition of Sitrick Brinko Group by Resources Connection Inc., $87.4M went to the purchase of Sitrick's personal goodwill and $5M went for the purchase of S&C's assets.
The suit charges the personal goodwill transaction was an "improper misappropriation and diversion of corporate assets and the royalty payments and/royalty obligations constituted the payment of excessive and unreasonable compensation and/or improper dividends to Sitrick.
The suit wants defendants Sitrick, wife Nancy and the Sitrick Trust to "disgorge" wrongful benefits and "restore to the ESOP all losses resulting from their breaches of fiduciary duty and co-fiduciary liability under ERISA, plus prejudgment interest."
Morgan Lewis & Bockius, which represents Sitrick, dismisses the suit, saying it doesn't believe there is any basis to the complaint.
ML&B attorney John Kober noted that Sitrick had no role in setting the valuation price that terminated the ESOP.
"We don't believe there is any basis to the lawsuit," he said.
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