Booz Allen Retirees May Have Securities Fraud Suit

Booz Allen Retirees May Have Securities Fraud Suit

A lawsuit against Booz Allen Hamilton Inc. by retirees of the government contractor has been partly resuscitated by The Second Circuit. The court claims that the plaintiffs had no case under the Employee Retirement Income Security Act (ERISA) but a securities class action is possible.

Booz Allen Employees Lose Money in Split Deal

The three retirees in the suit, Bruce Pasternack, Reginald Boudinot and Paul Kocourek, retired from Booz Allen before a deal in 2008 split the contracting side of the business with the consulting side. The consulting side of the business folded into PricewaterhouseCoopers LLP and the contracting unit went to the private equity giant Carlyle Group.

Until the 2008 deal, the company had been owned by its employees, who accrued equity under a stock rights plan (SRP). Typically, upon retirement, employees sold their equity back to the company for gain. When Pasternack and Boudinot retired, they sold their shares back Booz Allen. Shortly after, the Carlyle Group acquired the contracting unit from Booz Allen for far more than Booz Allen had paid for the retiree’s shares.

A few months later, Kocourek managed to sell his shares to Carlyle Group directly at a higher price, only to find out that his shares were also undervalued when the company took Booz Allen public two years later for almost double what it had initially paid for it.

The three filed suit to claim they lost money in the deal and the companies had violated its duties to the SRP under ERISA. A district judge dismissed the initial claims, stating that there was no duty to the SRP under ERISA.

Booz Allen Suit to Move Forward with Securities Fraud Charge

With the claims rejected, Kocourek tried to amend the complaint to a securities fraud claim on behalf of a class of hundreds of Booz Allen employees. Upon filing the amendment, U.S. District Judge Lew Kaplan denied Kocourek the permission, stating Kocourek waived his right to bring a securities fraud suit when he transferred his shares to Carlyle.

Now, the Second Circuit court has said that the waiver Kocourek signed wasn’t legal and a securities fraud case could move forward. We’ll continue to report as the case unfolds.

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