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Tuesday, July 29, 2003 - Page updated at 12:00 AM

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Services Group of America profit-sharing suit settled

Seattle Times business reporter

Officials of Services Group of America, the West Seattle conglomerate run by Thomas Stewart, have agreed to pay $1.75 million to settle a class-action lawsuit alleging mismanagement of the company profit-sharing retirement plan.

In addition, Frank Russell Trust of Tacoma, which handled the day-to-day operations of the plan, will pay $200,000 as part of the settlement approved last week by U.S. District Judge Barbara Rothstein.

More than 1,600 current and former SGA workers will split the settlement money, after yet-to-be-determined attorney's fees and court costs are deducted, said Rick Spoonemore, one of the lead attorneys for the workers.

Spokesmen for SGA and Frank Russell did not return phone calls seeking comment.

SGA, a holding company with interests in food service distribution, real estate development and travel services, is one of Washington's biggest privately held companies. Stewart, its president, is a large donor to Republican candidates and causes.

The suit claimed that in October 1998, Stewart and eight other members of the committee that oversaw the profit-sharing plan abruptly pulled its $30 million in assets out of a balanced portfolio of stocks and bonds, and parked the money in very conservative, low-yielding Treasury securities and money-market funds.

The committee, Spoonemore said in an interview, was concerned that the Asian financial crisis and Russia's billion-dollar default would send stock prices crashing. Indeed, the broad-based Russell 3000 stock index had already fallen 21.4 percent from its July 1998 high.

However, the decision took place at almost exactly the worst time. From Oct. 8, 1998, to April 30, 1999 — after which SGA gave its employees the responsibility of deciding how to invest their own profit-sharing money — the Russell 3000 soared 40.5 percent, while the conservative Treasury and money-market investments gained only 6.25 percent.

"This was a form of extreme market timing — not as the result of cool contemplation but a panicked selloff that had the effect on the employees of locking in their losses," Spoonemore said.

The suit, filed in October 2001, claimed not only that the committee's investment switch was hasty and ill-informed but that the workers were not told of it until December 1998. The plaintiffs' claim that they were entitled to "opportunity losses" — the money they would have made had their profit-sharing money remained invested in the diversified stock-bond portfolio — is a relatively untested argument in Western courts, though it has had some success elsewhere.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Copyright © 2003 The Seattle Times Company

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