Feds investigating Hobbico over deferred employee stock payments

Feds investigating Hobbico over deferred employee stock payments

CHAMPAIGN — After deferring employee stock-ownership payments last year, Hobbico is under investigation by the U.S. Department of Labor and its share value appears to have plummeted.

In a letter sent to former employee Nina Sibley-Richardson, the distributor of hobby products confirmed that it's under investigation.

"Due to Hobbico's failure to satisfy its repurchase obligations in 2016, the DOL started (an) investigation of the ESOP in early 2017," states the letter, which Sibley-Richardson shared with The News-Gazette.

"The DOL informed Hobbico of the investigation via (a) formal letter, but no subsequent activity has occurred since the letter was presented."

The investigation could take a while, according to a second letter Sibley-Richardson received, in late November, from the Department of Labor.

"This process can be very lengthy," it said.

In 2005, Hobbico's owners formed an employee stock-ownership program when they sold the company to the ESOP, which in turn distributed shares to employees.

ESOPs are designed to encourage employees to think like owners while also providing some tax benefits. Because of those benefits, companies must follow certain rules for how and when employees get their benefits, according to the nonprofit National Center for Employee Ownership.

At Hobbico, when an employee leaves the company, they're supposed to get reimbursed for their shares in the company five years after they depart.

Sibley-Richardson, who worked at Hobbico for more than 10 years and left in 2010, tracks the value of her ESOP account and receives an alert each week with its value.

It had been valued at just over $27,000. Then, on Nov. 17, she received an alert that the balance had plummeted to less than $5,000, a decline of more than 80 percent.

The company is valued once per year, Sibley-Richardson said.

"The share value in the ESOP is based on company performance, just as it would be if the stock market fell and your investments lost value," Hobbico wrote in its letter to Sibley-Richardson.

Hobbico officials declined to comment when contacted by The News-Gazette.

"Thanks for the inquiry, but we do not have a comment on the ESOP valuation at this time," said Howard Salazar, Hobbico's human resources director.

Sibley-Richardson was expecting to receive her ESOP payment in 2016, but Hobbico deferred that payment at the end of the year after operating expense and productivity goals weren't met by the company.

"It is expected that 2017 will also be a challenging year for the business," then-CEO Wayne Hemming wrote at the time in a letter to current and former employees.

Sibley-Richardson had been planning to use the ESOP check to put a down payment on a house. Now, she said, she's not expecting to receive anything.

"I probably won't ever see a dime of that money," she said.

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