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Business owner misused money from profit-sharing fund

The trustee for a profit-sharing fund is suing a California business owner over almost $300,000 that the trustee claims was improperly taken to fund a personal purchase.

The husband-and-wife owners of a pizza franchise also held shares in Delight Foods, the parent company of the profit-sharing plan. The husband was also the company's chief executive officer (CEO) until early 2018. At that point, the defendants' illicit withdrawals from the funds were uncovered.

The new CEO of the fund, who is also its trustee, alleges that the husband and wife took the money to purchase a couple of vacant lots. There is no justification within the plan for the purchase and it doesn't appear to be business-related in any way. In addition, the money was taken without any collateral being used to secure the return of the funds.

The lawsuit alleges that the husband and wife improperly converted the funds from the plan to their own use in an act of unjust enrichment. Essentially, it means that the husband breached his fiduciary duty during his time as trustee by allowing his wife to take the money without either the proper business purpose or proper security against financial loss.

In return, the husband claims that the whole thing is just a titling mistake. He insists that the property was an investment on behalf of the fund, not personal gain.

The wife has transferred the property back to Delight Foods. However, that hasn't halted the lawsuit. The current trustee claims that the title wasn't an accident and still wants the money back -- plus interest.

Lawsuits like this illustrate the importance of always keeping an arms-length away in transactions involving profit-sharing plans. Unless a purchase or other transaction is entirely transparent, it can lead to serious financial consequences in the future.

Source: The Bulletin, "Lawsuit: Business owner used profit-sharing money to buy land in Bend," Kathleen McLaughlin, March 09, 2018

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