BENTON – Former Casino Queen president Jeffrey Watson, now a judge in St. Clair County, faces a potential class action claiming he and others concealed the boat’s dismal financial condition when they arranged for employees to buy it.
Former employees Tom Hensiek and Jason Gill sued Watson and others in U.S. district court on April 27, seeking damages for hundreds of stockholders.
They claim they learned last October that Casino Queen stock was worth about 95 percent less than defendants reported for years.
Watson, who as casino president also held the position of general counsel, gained an appointment as associate judge in January 2019.
Hensiek and Gill also seek damages from former owners Charles Bidwill, Timothy Rand, and James Koman, and from former finance officer Robert Barrows.
Attorney Mary Bortscheller of the Cohen Milstein firm in Washington filed the complaint in association with the Nichols Kaster firm in Minneapolis.
Hensiek lives in Troy and Gill lives in Nashville.
The suit says that Hensiek began working at Casino Queen in 1999, and left a position as manager in 2018. He understood he’d receive a first payment from his employee stock ownership plan account in late 2019.
Instead, the suit claims, he learned his account would be closed.
“Plaintiff Hensiek had planned to use his first distribution from his employee stock ownership plan to supplement his income in 2019,” the suit says. “Plaintiff Hensiek also intended to rely on his employee stock ownership plan account as a source of income in retirement.”
Gill began working at Casino Queen in 2013, and left a position as dealer in 2018.
Near the end of last year, the suit says, he learned his account would be closed.
According to the suit, Bidwill, Rand, and Koman tried to sell the casino from 2006 to 2011.
They “created their own buyer for the company by establishing the employee stock ownership plan to buy it outright,” the suit says. And, they allegedly established the plan in 2012, “solely for the purpose of purchasing 100 percent of outstanding stock of the company.”
They allegedly picked Watson and Barrows as trustees of the plan.
Watson allegedly told state gaming commissioners his employees were excited about the plan, although they hadn’t been told about the plan.
Management allegedly told employees they could make nearly the equivalent of their salaries and they would be able to buy second homes.
The suit goes on to state that the company stopped contributing to its previous retirement plan.
It then reported the sale price to the Securities and Exchange Commission at $175 million and to the Department of Labor report at $4 million.
The plan borrowed $170 million to buy all the stock, and the owners sold the company’s real property to pay off the debt, the suit claims. The company then allegedly agreed to lease the property back for about $14 million a year over 15 years.
“Thus, over the full term of the lease, the company agreed to pay $210 million in rent for property it sold for only $140 million,” the suit says.
The suit claims this was a bad deal for the company and the plan, but benefitted Bidwill, Rand, and Koman.
They received $46,278,000, according to their report to the Securities and Exchange Commission, the suit claims.
“The asset sale that was used to refinance the transaction debt left Casino Queen as a shell of a company that did not own any real property assets and which did not have sufficient cash flow to service its remaining debts,” the suit says.
Employees allegedly didn’t learn the plan (which has had 512 to 631 participants) bought the casino until after the transaction was completed.
“To this day, plaintiffs do not know the share price of the stock purchased in the 2012 transaction,” the suit says.
Employees were told they would vote on any transaction greater than $3 million, the suit says, but the company didn’t permit a vote on the property transaction.
The company allegedly didn’t permit a vote when it acquired the Casino Queen Marquette in Iowa for $40 million.
Defendants allegedly knew or should have known revenues dropped for years and the company struggled as the number of competitors grew.
The suit further says that an Illinois smoking ban diminished the casino’s prospects and that St. Louis’s removal of a $500 loss limit removed an edge Illinois casinos had enjoyed over competitors across the river.
Hensiek and Gill exercised due diligence by reviewing annual account balances and attending meetings, the suit says, and these sources indicated that their accounts were growing rapidly.
When Gill left, management told him he made a big mistake because the stock ownership plan would provide the best retirement, the suit says.
Last October, the plan for the first time disclosed doubt about the company’s ability to continue as a groing concern, the suit says. And at the same time, it disclosed that it didn’t comply with debt covenants.
Watson’s successor as president, Terry Hanger, allegedly sent employees a letter stating the annual profit fell nearly 60 percent from 2016 to 2018.
The suit says that violations of federal law caused losses in the tens of millions to those who overpaid for stock and won’t receive deferred compensation.
The court clerk assigned the action to Magistrate Judge Reona Daly, but all parties must consent or the clerk will assign a district judge.