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Management Side
Lawsuit filed to recoup Appvion employees' lost retirement money

APPLETON, Wisconsin (From news reports) -- Appvion employees who lost millions of dollars in retirement savings when the company went bankrupt last year have a shot at getting their money back.

A lawsuit filed late Monday by Employee Stock Ownership Plan committee administrator Grant Lyon claims "fraud and concealment" in the handling of the ESOP from the time it was formed in 2001. It demands a jury trial.

The complaint charges the company's past senior management, directors, ESOP committee, ESOP trustees and advisory firms with negligent misrepresentation of the true value of the stock and breach of fiduciary duty.

As a result of their actions over 18 years, employees suffered "hundreds of millions in damages, including what they had invested in the ESOP Plan."

"The employees are the beneficiaries of this lawsuit. The goal is to help them recover," said Lyon.

Lyon is an independent financial advisor who was appointed by Appvion's board as sole member of the ESOP committee in August 2017, just prior to the company's bankruptcy filing.

The complaint was filed in the United States District Court's Eastern District of Wisconsin, Green Bay Division.

Defendants named in the lawsuit include former Appvion CEOs Doug Buth, Mark Richards and Kevin Gilligan; former general counsel Paul Karch and others in financial and operations positions in the company over time. Valuation firms and professional advisors listed as defendants include Houlihan Lokey Capital, Stout Risius Ross and Argent Trust Co.

"The defendants participated in 'fraud or concealment' regarding the true value of the PDC stock," the complaint reads. "Appvion management and professional advisors fraudulently persuaded Appvion's employees to buy PDC stock."

PDC was the corporate name of Appvion's parent company, Paperweight Development Corp., which was 100 percent employee owned. It became worthless when Appvion filed for bankruptcy in October 2017. The company was sold in June to a group of its lenders and continues to operate.

The Appvion company is not involved in the lawsuit as a defendant or as a beneficiary.

"Appvion Operations has no comment to provide on your story," said company spokeswoman Wendy L. Melzer.

The lawsuit filed Monday said an Aug. 2, 2001 video shows Buth and Karch making "repeated misrepresentations to Appvion's employees in order to convince them that they should seize upon this 'unique one-time opportunity' to transfer money out of their 401(k) plans to buy PDC stock."

Employees ultimately voted to use their 401(k) plans as a $106 million down payment to fund the ESOP purchase of the company in November 2001.

Employees were convinced to invest their "life savings, earned paycheck by paycheck, in a very risky transaction in which every dollar the employees invested was encumbered with approximately $6.60 in debt," the complaint alleges.

They continued to put portions of their paychecks into the ESOP to buy stock "instead of investing in more reliable, diversified, marketable and liquid 401(k) accounts."

The complaint says executives downplayed risks of transferring funds from employees' existing retirement plans to a new "highly-leveraged, undiversified ESOP" in 2001.

Executives rewarded themselves by "cashing out at periods of fraudulently high stock prices" or receiving excessive compensation packages.

The stock value started at $10 a share in 2001 and rose to $33.41 a share in December 2007.

"During this period (2005-2007) when Appvion's fraudulently appraised value was at or near its highest, virtually all of Appvion's top management, including Buth and Karch, armed with inside information about Appvion's true financial condition, left the company and began the process of cashing out of their personal investment in PDC stock, as well as phantom stock and deferred compensations rights.

"These departures, timed to coincide with the fraudulently high stock valuations, caused the ESOP Plan and Appvion to drastically overpay these executives and drained Appvion's critical cash reserves," the lawsuit stated.

The stock's price declined to $12.03 in June 2010, partly due to the recession, and climbed back to $17.85 in June 2013, according to "fraudulently appraised stock values," it was alleged.

The stock price declined to $6.85 in June 2017, and the October 2017 bankruptcy wiped out its value entirely.

Jan Peebles is a former Appvion employee who lost the last payout from his ESOP retirement funds when the company went bankrupt. His loss was about $80,000, he said, if the stock is valued at the low point of $6.85.

Hearing about the lawsuit Monday gave him hope that he and other who lost hundreds of thousands in retirement money will get something back.

"This is really good news," Peebles said. "I'm very pleased.

"The best bet is to go to a jury trial and plead the case with a jury of our peers who would likely side with the employees. I'm glad these executives are being held accountable for their actions."

The timeframe of the lawsuit is contingent on attorneys filing motions and paperwork. A judge then determines the course of action.

Employees could eventually see money from a $35 million insurance policy and potentially money from two other $10 million insurance policies.

At the time of bankruptcy, the ESOP's value was said to be about $40 million.

"We are not just going after the dollars invested, but additional amounts," said Lyon.

A damage study will determine the exact dollar amounts.

Lyon said he and the attorneys feel there's merit to the lawsuit and they will be successful. He and the attorneys are paid on contingency.

Attorneys for the plaintiff are Frederick Perillo and Sara Geenen in Milwaukee and members of the Beus Gilbert firm in Phoenix, Arizona.


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