A shareholder and corporate governance advocate has sued Farmer
Bros. Co. and its board of directors for allegedly manipulating the
company's employee stock ownership plan for the benefit of the family that
founded the Torrance-based coffee roaster.
The lawsuit, which seeks class-action status, was filed late Thursday and
aims to block management's voting control over the shares in the ESOP, which
owns 8% of the company. The lawsuit, filed in U.S. District Court in Los
Angeles, also seeks to recover from individual directors an estimated $35
million in corporate funds to purchase stock for the ESOP.
According to the lawsuit filed by Leonard Rosenthal, a professor of finance
at Bentley College in Waltham, Mass., the company's directors and senior
executives used company funds to loan the ESOP millions of dollars over a
four-year period as a way to increase their control over the company.
Management has used the ESOP shares to vote in concert with the stock
controlled by Roy F. Farmer, the 87-year-old chairman of the company and son
of the founder, to fulfill "the twin Farmer family goals of entrenchment and
minimizing estate taxes," the suit claims. Farmer served as chief executive
for more than 50 years until turning the reins over to his son Roy E. Farmer
this year.
The two Farmers, who are members of the board, along with other directors
and top managers hold voting control over about 53% of Farmer Bros. stock,
including the ESOP.
Farmer Bros. issued a statement, saying the company had not had a chance to
"thoroughly review" the lawsuit. "On its face, however, there appears to be
no basis for this action," the company said.
Rosenthal purchased nine shares of Farmer Bros. stock in July as an
investment. His shares are worth $2,837.25, based upon the stock's per-share
price of $315.25 at the close of Nasdaq trading Friday.
"One reason we have seen so many corporate scandals in recent years is that
management and directors treat shareholders' money like it is their own
piggy bank," Rosenthal said.
The professor has gained notoriety recently as a vocal critic of the mutual
fund industry, which is facing widespread allegations of improper trading
and insider self-dealing at the individual investor's expense.
Rosenthal's lawsuit is the latest in a variety of moves by dissatisfied
Farmer Bros. shareholders who are trying to loosen management's grip on the
company, which has a market value of about $600 million, making it one of
the largest publicly traded food processors based in California.
Copyright 2003 Los Angeles Times
The
Forum is open to all Farmer Bros. shareholders, whether institutional or
individual, and to professionals concerned with their investment decisions.
Its purpose is to provide shareholders with access to information and a free
exchange of views on issues relating to their evaluations of alternatives.
As stated in the Forum's
Conditions of Participation, participants are expected to make independent use
of information obtained through the Forum, subject to the privacy rights of
other participants. It is a Forum rule that participants will not be
identified or quoted without their explicit permission.
There is no charge for
participation. Franklin Mutual Advisers, LLC, the manager of funds
owning approximately 12.6% of Farmer Bros. shares, provided initial
sponsorship for the Forum and arranged for it to be chaired by
Gary
Lutin. Continuing support and guidance of the Forum is provided by an
Advisory Panel of actively interested shareholders.
For additional information or to be included in an email
distribution list, send an inquiry to
farm@shareholderforum.com.
