MSG draws upon its knowledge and expertise in the areas of damages, securities, valuation, and fiduciary duties, to address labor, employment and pension matters. We are often engaged to evaluate the actions of fiduciaries, assess the prudence of investments, determine damages, and address a variety of other issues that often arise in ERISA, ESOP, and wrongful termination matters. Our valuation experience also makes MSG particularly well suited to assist companies in establishing the fair market value of stock for executive compensation purposes.
Employment Case Studies
Defined Contribution Plan
An electric utility transitioned its business to emphasize merchant energy trading operations. Many of the company’s employees had significant holdings of company stock in their retirement plan accounts and were encouraged to purchase and hold company stock by company management. Following a decline in the price of the company’s stock, a lawsuit was filed alleging that the changing business and risk profile of the company had not been adequately disclosed to retirement plan participants. MSG was retained to assess the prudence of the company’s stock as a retirement plan investment, and analyze the disclosures made to plan participants.
An industrial and service conglomerate engaged in various accounting practices which resulted in the alleged overstatement of its earnings. When the fraud was revealed and the company announced a restatement of its audited financial statements, the price of its publicly traded stock declined precipitously. Investors in the company’s defined contribution retirement plan brought suit alleging that the plan fiduciaries breached their duties by allowing plan assets to be invested in a company stock fund when the stock held by that fund was not a prudent investment. MSG was engaged to opine on the topics of fiduciary duty, investment prudence, accounting, and damages, as well as to evaluate and respond to various opinions offered by opposing accounting and financial experts.
A founding partner of an asset management firm left to join a competing firm. Under the terms of the firm’s partnership agreement the departing member was entitled to receive payment for his pro-rata ownership share, which management calculated based on a valuation performed by an independent, third-party appraiser. Within a year after the partner left, the firm was acquired by a large foreign company seeking a position in the U.S. market. The purchase price was higher than that indicated by the third-party appraiser. The departing partner subsequently brought a lawsuit against his former firm, alleging that he had been underpaid for his interest. MSG was retained to analyze the asset management firm at the time of the partner’s departure and provide opinions as to its value in accordance with the terms laid out in the partnership agreement.
The retirement plan of a discount retailer allegedly continued to purchase and hold the company’s stock when the plan’s trustees knew of the company’s financial distress. The U.S. Department of Labor (DOL) claimed it was not prudent to purchase and hold the firm’s stock for its employees. MSG was retained to analyze the stock price movement and related events in order to assist the DOL in determining whether it should file a lawsuit against the company and its Board of Directors.
A manufacturer of power protection systems retained an independent contractor to function as a Chief Financial Officer. Six months later, the independent contractor became a salaried employee. Two years after becoming a salaried employee, the individual left the firm, claiming additional compensation was owed. The claim for additional compensation was based on the assertion that the individual qualified for the company’s employee stock ownership plan (ESOP) dating back to the commencement of the independent contractor status. MSG was engaged to evaluate the actions of the individual while in the CFO post.
A global business consulting firm performed a study of a well-known company that develops and manages international destination resorts. After reviewing the consulting firm’s report, the Board of Directors terminated the employment of the Chief Executive Officer, the son of the founder. The CEO sued the consulting firm claiming damages. MSG was retained to assess damages, if any, critique an opposing expert’s report and to prepare the attorneys for their cross examination of witnesses at trial.
An employee of an internet marketing firm was granted restricted stock in the firm. The employee was later terminated. Shortly thereafter, the company had its initial public offering (IPO). Two and one-half years after the IPO, another publicly-traded firm acquired the marketing firm. The terminated employee sued, alleging damages arising from the missed opportunity resulting from the IPO, which included the value of the restricted stock. MSG critiqued the damage analysis prepared by an opposing expert and calculated the damages, correcting for errors made by that expert in applying the Black-Scholes option pricing model.
Employee Stock Ownership Plan
The employee stock ownership plan (ESOP) of a manufacturer of office equipment invested in the stock of the company. The firm filed for bankruptcy, but its founder allegedly took some of the proprietary knowledge developed at the company and used that knowledge to start another company. The U.S. Department of Labor (DOL) sought to have the value of that proprietary knowledge put back into the estate of the bankrupt firm. MSG evaluated the merits of the DOL’s case against the founder.
A vice president at a high-profile internet start-up received a bonus one month before the company filed for bankruptcy. MSG was engaged to analyze the solvency of the firm at the time of the alleged preference payment. In conducting our solvency analysis, MSG employed business valuation methods appropriate for such an Internet start-up.
Cheap Stock Valuation
A diversified health care company granted stock options to several executives prior to the company’s initial public offering (IPO). MSG was retained to value the stock of the company at the time the options were granted. A valuation was performed to determine whether additional compensation should be recorded and disclosed in the IPO’s offering prospectus.
The independent accountants for a professional salon products company performed both auditing and consulting services for the firm. In addition, former employees of the accounting firm were members of the company’s management team. The Board of Directors of the company pursued a business strategy of growing through acquisitions. As was discovered later, the financial statements and other information on which the board relied were inaccurate. The company filed a lawsuit against its independent accountants and others, claiming that if the company and its Board of Directors were provided with accurate and timely financial information, the company would have pursued a different strategy. MSG reviewed and assessed the strategy the company followed and evaluated alternative strategies.