Former managers of Tampa, Florida-based radiology company Advanced Diagnostic Group (ADG) and its employee stock ownership plan (ESOP) retirement benefit manager GreatBanc Trust Co. will pay $19 million to settle a class action lawsuit. The suit alleges they allowed the ESOP’s value to be diverted to managers, directors and their shell companies and away from employee participants.
About 180 former ADG employees said they received a fraction of the retirement benefits that they should have through the ADG ESOP, and the suit sought to recover the full value of participants’ benefits.
Both parties filed a motion March 27 in U.S. District Court, Middle District of Florida, seeking preliminary approval of a settlement. It calls for the establishment of a qualified settlement fund that the former ADG executives and GreatBanc Trust Co. will deposit $19 million into. This will be used so former employees can recover some of the value of the ESOP and to pay for the class action attorneys’ fees.
The agreement also specifies that the defendants deny any liability or wrongdoing and state that they are entering into the settlement to eliminate the burden and expense of further litigation.
An escrow agent will invest the settlement funds in short term United States treasury securities
The suite was originally filed by a former employee in April 2022 alleging the defendants wrongfully diverted value from ADG employees’ retirement benefits in the form of ADG’s stock to themselves. The suit also alleged GreatBanc failed to competently execute its duty as the trustee of the account to protect the ESOP from the stock diversion. The plaintiff, an ESOP participant, said they received a smaller benefits distribution from the ESOP due to defendants’ actions and omissions.
Co-defendants in the suit are Kevin G. Johnson and Dale L. Hersey, who are accused of shifting of funds in then suit. They were involved with the private investment firm Palm Beach Capital (PBC) that invested in and acquired ADG. In 2015, Johnson and PBC transferred 100% of ADG’s stock to a newly formed ESOP. The suite alleged Johnson and PBC used the ESOP to create a lopsided deal that extracted the current value of the company for themselves while also allowing them to claim a large share of the future value of the company through interest payments and warrants to obtain new ADG stock. Johnson and PBC were supposed to claim 42 cents of every dollar that ADG shares increased in value after the ESOP was formed. The other 58 cents were supposed to accrue to the benefit of the ESOP and ADG’s employees. But the plaintiff argued Johnson and PBC worked to deny the ESOP its 58 cents and divert ADG’s business opportunities to themselves through separate legal shell companies.
Johnson and Hersey then sold ADG to Akumin $215 million in 2019. The lawsuit alleged that less than 5% of the sale proceeds, around $10 million, was distributed to ESOP participants and then the defendants terminated the ESOP.
Under the agreement, PBC will pay $14.8 million into the the settlement fund.
Read the full class action settlement agreement.
Read the full lawsuit filed in 2022.
Dave Fornell has covered healthcare for more than 17 years, with a focus in cardiology and radiology. Fornell is a 5-time winner of a Jesse H. Neal Award, the most prestigious editorial honors in the field of specialized journalism. The wins included best technical content, best use of social media and best COVID-19 coverage. Fornell was also a three-time Neal finalist for best range of work by a single author. He produces more than 100 editorial videos each year, most of them interviews with key opinion leaders in medicine. He also writes technical articles, covers key trends, conducts video hospital site visits, and is very involved with social media. E-mail: dfornell@innovatehealthcare.com