A former c-suite employee of Kenosha-based manufacturer
Pacific Sands has filed a shareholder lawsuit in federal court against the company’s chief executive officer and board of directors alleging that he found evidence of misconduct on behalf of the CEO that was ignored by the board.
A formal complaint was filed Wednesday in U.S. District Court for the Eastern District of Wisconsin on behalf of
Terry Haggerty, the third largest shareholder of Pacific Sands, former board member, and former chief financial officer of the company.
Pacific Sands manufactures commercial cleaners and spa chemicals that are eco-friendly and biodegradable.
The complaint alleges that
Michael Michie, CEO of Pacific Sands, along with the company’s board of directors, have breached their fiduciary duties. The complaint also claims the company’s board has “refused to take any action” to stop Michie or terminate him from his role as CEO.
When reached via email Thursday, Michie declined to comment on any pending litigation.
Specifically, the lawsuit alleges that Michie breached his fiduciary duties by taking assets from Pacific Sands for his own personal gain; causing the company to violate federal and state wages laws, which led to the company withholding pay from employees; paying third-party contractors for services that were not actually performed; and refusing to tender a stock certificate for Pacific Sands’ common stock after receiving cash compensation for a “substantial portion of those shares.”
"All of Pacific Sands’ directors have also breached their fiduciary duties to (the company) because they have intentionally refused to hold an annual shareholder meeting and an election of the board," according to the lawsuit. "As a result, the board has failed to apprise Pacific Sands’ shareholders of CEO Michie’s numerous breaches of his fiduciary duties and the damage he has caused Pacific Sands."
Haggerty alleges he was suspended without pay from his role of CFO in June when he insisted that an annual meeting and election of the board be held. Pacific Sands has not held an annual meeting for 19 years, according to his complaint.
While reviewing Pacific Sands’ account last February, Haggerty alleges he discovered the company’s financial books had been manipulated by Michie.
Michie allegedly created a false invoice for the purported sale of $18,000 worth of Pacific Sands products. That sale was not recorded within the company’s financial records. An invoice worth $18,000 was then sent to a customer that later sent a payment of $18,000 to an account solely controlled by Michie, according to the complaint. When the payment was sent by the customer, Michie is accused of later creating a real invoice from Pacific Sands in the amount of $12,000. However, Michie stopped the invoice he created from being printed so it could not be mailed to the customer.
"On the same day, CEO Michie took $6,000 in cash from the savings account over which he had sole control, and he deposited that $6,000 into his personal checking account," according to the complaint.
Haggerty also allegedly discovered Michie sold a customer $63,740 worth of product for only $21,600, which violated the company’s policy of no discounts over 20% without prior board approval.
A later cybersecurity review of the company’s assets led to the discovery that Michie also allegedly paid business expenses for his life partner’s dog walking company with Pacific Sands' assets.
Michie also stands accused of causing Pacific Sands to violate its ISO Certification standards after powder for deck and patio cleaning products was allegedly used to fill containers labeled as laundry powder.
"CEO Michie knowingly did so, in order that Pacific Sands could avoid buying additional supplies of two enzymes that made Pacific Sands’ laundry powder effective," reads the complaint.
Michie also "knowingly refused, and continues to refuse, to deliver shares of Pacific Sands’ common stock representing $45,000 that he was actually paid in cash by Pacific Sands," according to the complaint.
The lawsuit seeks the removal of Michie from his role of CEO of Pacific Sands and damages in excess of $75,000, to be determined at trial.
