US - CalPERS, the giant $151bn California Public Employees' Retirement System, is taking the Texan food restaurant chain, Lone Star Steakhouse & Saloon and its management to court for mismanaging the company.
According to the complaint, Lone Star's management has cost the company and shareholders nearly $125m since 1995 through it's repricing of 13.6m of company stock and a series of self-dealing transactions conducted by the firm's chief executive officer and other senior members of management.
The complaint, filed in the Delaware Court of Chancery, claims that by engaging in these actions, Jamie Coulter, CEO and former chairman of the Kansas-based restaurant chain, and his hand-picked board breached their fiduciary duty to the company's shareholders. The complaint accuses the firm's management of enriching themselves through these transactions, particularly Coulter, who CalPERS claims earned millions through the scheme.
CalPERS alleges that Coulter earned $10m from a self-dealing sale in which a separate company that he owned was sold to Lone Star. The firm, which CalPERS describes as a purported restaurant management company, has one client - Lone Star Steakhouse.
The pension fund giant, which owns more than 372,000 shares of Loan Star, is looking for the courts to void the options repricing, rescind the acquisition of Coulter's firm and award an unspecified amount in compensatory damages back to Lone Star.
The complaint adds that Coulter and the board's actions were especially upsetting as they came at a time when the firm's fortunes were rapidly deteriorating. Between April 1996 and October 2000, Lone Star's stock price declined 85%, from $44 a share to less than $7 a share.
The Board and Coulter have engaged in a pattern of self-dealing to the point where investors became so enraged that Coulter was unseated from his Board position in a proxy contest, despite his ownership of almost 20% of the company's outstanding shares, the shareholder suit claims.
In addition to Coulter, defendants named in the lawsuit include Lone Star current and former board members John White, who was executive vice president and treasurer; Fred Chaney, a Lone Star director since May 1995; William Greene Jr, a company director since August 1999; Michael Archer, former director and senior vice president of operations; Clark Mandigo, director; and William Tilley, a former director.
By Geoffrey Ho
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