The first of what may be many shareholder lawsuits against former Engineered Support Systems, Inc. CEO Michael Shanahan Sr. his son, and other company officials was filed Tuesday in U. S. District Court for the Eastern District of Missouri.
Named in the suit are the elder Shanahan, former owner of the St. Louis Blues hockey team, Michael Shanahan Jr., a member of the ESSI Board of Directors and Compensation Committee, former Chief Financial Officer Gary Gerhardt, Support Controller Steven Landmann, and members of the board of directors of the company that bought ESSI, DRS Technologies. ESSI is a manufacturer of military equipment.
Daniel B, Nickell, represented by the San Diego law firm Johnson Bottini, says the Shanahans and the other ESSI officers made a killing by backdating stock options in a scheme dating back to 1997. The former ESSI officials were indicted last month by a federal grand jury in St. Louis.
According to the petition, the ESSI officials "placed their bets after the race by retroactively picking dates for stock options that coincided with low points in the company price."
The backdated options brought $7.8 million to the senior Shanahan, $80,000 to Michael Shanahan Jr., $486,000 to Landmann, and $1.8 million to Gerhardt, according to the lawsuit.
At times, the petition said, just backdating was not enough to suit the greed of the ESSI officials. "On at least three occasions after backdated stock options had been prepared, but before they had been registered," the company's stock price fell even lower and the ESSI officials "simply caused the already backdated options to be cancelled and then caused new options to be prepared reflecting the new even lower stock price."
The lawsuit accuses the ESSI officials of insider trading, breach of fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement. Nickell is asking for a jury trial.