By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
On April 15, 2022, a participant in a Florida-based radiology chain’s employee stock plan filed a federal lawsuit in Florida, accusing company executives of scheming to drain the plan’s value for their personal benefit. The former employee of Advanced Diagnostic Group (ADG) filed a proposed class-action suit claiming company executives improperly diverted money away from the employee stock plan to shell companies. The law suit states that the scheme left employees with less than 5% of the proceeds after a $215 million sale of the company.
Of course, as I always say, this is America where anyone can sue anybody for anything. So we must remember to see how this plays out in court before assuming that all allegations are true.
The Class Action Claim.
According to the lawsuit, two ADG executives schemed together to divert business opportunities to themselves through separate legal shell companies that were not required to distribute their profits to ADG. In 2019, when they sold the company for $215 million, they ensured that the shell companies received inflated valuations and captured an outsized portion of the sale proceeds, the plaintiff alleged. Only about $10 million was distributed to participants in the employee stock ownership plan, according to the complaint.
Additional Details in the Complaint.
The plaintiff claims that in 2015, one of the executives, along with a private equity firm, Palm Beach Capital, transferred all of ADG’s stock to a newly formed employee stock ownership plan (ESOP). As a result, they were able to structure a lopsided deal that extracted the company’s value for themselves. The setup allowed them to claim 42 cents of every dollar that ADG shares increased in value, leaving the other 58 cents to accrue for the benefit of the remaining participants in the stock plan, according to the complaint. However, the plaintiff says one of the executives denied the plan its share by diverting business opportunities to his shell companies instead.
The employee stock ownership plan was terminated nearly three years ago and has no assets, according to the complaint.
To learn more read the complaint in full here.
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Sources:
Bolado, Carolina. “Radiology Chain Exec Stiffed Workers In Stock Plan, Suit Says.” Law360. (April 15, 2022). Web.
Willie, Jackelyn. “Ex-Advanced Diagnostic Employee Alleges Stock Plan Value Drain.” Bloomberg Law. (April 15, 2022). Web.
About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law; he is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in Orlando, Florida, area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Avenue, Suite 1000, Altamonte Springs, FL 32714, Phone: (407) 331-6620 or Toll-Free: (888)-331-6620.
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