Two participants in the Casino Queen Employee Stock Ownership Plan have filed a class-action lawsuit against CQ Holding Co., East St. Louis, Ill., and other fiduciaries alleging they violated their duties in the management of the ESOP.
The lawsuit, filed Monday in U.S. District Court in East St. Louis, alleges the company's board of directors and the ESOP's administrative committee violated their duties under the Employee Retirement Income Security Act of 1974 by approving $170 million in debt the ESOP took on to purchase Casino Queen stock, when it was created in 2012 to make Casino Queen a wholly employee-owned company.
"Casino Queen employees were forced to invest their employer-sponsored retirement savings in Casino Queen stock at a price and terms approved by the ESOP trustee without employee input," according to the filing. The lawsuit also alleges that employees did not learn that the ESOP purchased Casino Queen until after the purchase price was agreed to and the transaction completed.
The lawsuit also alleges the company misstated the value of company stock until October 2019 when the ESOP disclosed in its Form 5500 filing its substantial doubt about its ability to continue as a going concern, due to "reduced patronage and negative environmental factors," leading to the plan sponsor's inability to service its outstanding debt.
According to the Form 5500 filing, the plan had $2.8 million in assets as of Dec. 31, 2018, down from $53 million a year earlier.
“As alleged in the complaint, the ESOP’s fiduciaries concealed for years that the ESOP transaction was designed and executed to benefit the Casino Queen’s prior owners and executives while providing only a hollow promise to employees,” Cohen Milstein Sellers & Toll, attorneys for the plaintiffs, said in a statement. “It was not until October 2019 when employees were told that the company stock in their retirement accounts was nearly worthless. Our clients are committed to obtaining justice for themselves and their fellow participants in the Casino Queen ESOP who were harmed by this alleged misconduct.”
Casino Queen officials could not be immediately reached for comment.