BENTON – Former Casino Queen owners argue “profound ignorance” on the part of plaintiffs who accuse them of concealing the casino’s poor financial condition when they sold it to employees as a pension investment.
Bill Bidwill, Timothy Rand, and James Koman stuck to that theme throughout a motion to dismiss a complaint of Tom Hensiek and Jason Gill on Aug. 24.
“Plaintiffs’ story is more fiction than fact,” the motion began.
Six lawyers who worked on it wrote, “Plaintiffs infer nefarious actions based only on their own miscomprehension of the documents.”
Troy resident Hensiek and Nashville resident Gill sued Casino Queen directors in April, proposing a class action for hundreds of stockholders.
The suit claims they learned last October that their stock was worth about 95 percent less than the casino reported for years.
Employees claim their accounts were closed.
Along with the directors, they sued former finance officer Robert Barrows and former casino president and general counsel Jeffrey Watson, now a St. Clair County associate judge. They also sued the committee in charge of the employee ownership plan.
Their lawyer Mary Bortscheller of Washington wrote that Bidwill, Rand, and Koman tried to sell the casino from 2006 to 2011.
The suit claims they created a buyer by establishing an employee ownership plan.
Management allegedly told employees they could make nearly the equivalent of their salaries and buy second homes.
The plan borrowed $170 million to buy stock. Defendants sold the casino’s real property and leased it back at $14 million a year for 15 years.
Employees say the deal was bad for the casino but good for Bidwill, Rand, and Koman, who received $46,278,000.
The suit claims the refinancing left an empty shell with no real property and not enough cash flow to service its debts.
Hensiek and Gill say they reviewed account balances and attended meetings, and both sources indicated their accounts grew rapidly.
To defend the claims, Bidwill and Rand retained the Lewis Rice firm of St. Louis, and Koman retained Groom Law Group of Washington.
Lewis Rice and Groom Law Group jointly filed the motion to dismiss.
They argue that in 2012, the casino redeemed its shares for $135 million in cash and notes before selling them to the employees. It refinanced its debt with a $31 million loan.
In 2013, the casino sold its property for $140 million and refinanced its debt with a $43 million loan.
Besides Bidwill, Rand, and Koman, there were 19 shareholders, defendants say.
Defendants also argue that independent trustee Great Banc Trust conducted due diligence, negotiated terms of the transaction, and ensured that it did not occur for more than fair market value.
Hensiek and Gill failed to mention Great Banc in the complaint, they say.
The “sole legal authority to cause the employee stock ownership plan to act rested with the co-trustees at Great Banc’s direction,” says the motion to dismiss.
Defendants argue that Hensiek and Gill failed to allege a plausible basis for a conclusion that the transaction occurred for more than adequate consideration.
They say the property sale was a corporate transaction outside the purview of federal pension law.
They inserted a lesson on external and internal debt with a diagram of six arrows among three boxes.
“The company’s equity value declines post transaction in light of its new debt obligation, but its enterprise value does not change,” the motion says.
Defendants aruge that Hensiek and Gill glossed over who specifically perpetrated the fraud and implied that all defendants were responsible.
“Plaintiffs no doubt blur defendants together to mask their own pleading deficiencies,” the motion says.
“To the extent any alleged concealment took place after 2013, the complaint itself acknowledges that each of the former shareholders was no longer associated with the company,” it says.
Defendants argue that much of what Hensiek and Gill were told about ownership plans creating wealth was demonstrably true and therefore not fraudulent.
Hensiek and Gill offered no information about when or how defendants conspired to doctor Securities Exchange Commission forms, the motion says.
Defendants say the reference to the forms underscored their profound ignorance.
“The Form 5500s are not fraudulent,” they say. “Plaintiffs just misread them.”
They claim Hensiek and Gill alleged that $170 million was greater than fair market value, but they didn’t allege what the value was.
They argue the complaint supported an inference that the ownership plan paid less than fair market value.
They claim the 2012 transaction occurred on arguably better terms than the property sale in 2013.
They attach links to news accounts from that period, arguing that terms of the transactions were well known and publicly available.
They separately moved to compel arbitration, under a provision the directors added to the plan in 2018.
The directors, the plan, Watson, and Barrows joined the arbitration motion.
Attorney Joel Rice of Chicago represents them.