Investor Sues Farmer Bros.
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.
