Here is another in our continuing series of articles about things going on around Rochester.
In the modern business world, it isn’t uncommon for companies to offer their employees shares or a stock option plan as an effective incentive for hard work and success. However, some recent claims from one such employee might make some people want to take a second look at their plan, and perhaps invest in some stock market research tools. A former officer and director at Sutherland Global Holdings Inc. is claiming that the outsourcing company owes him nearly $2 million after failing to follow through on a deal regarding his company shares.
Based in Perinton, Sutherland Global provides outsourced business services in several different countries. The company employs 3,000 local workers, making it one of the largest employers in the region, but has also hired 30,000 others around the world. Muthu Narayanan was one of them. A citizen and resident of India, Narayanan reportedly served as a Sutherland Global director, as well as an officer and director of some of the firms overseas subsidiaries. He served the company for more than a decade before leaving in mid-October.
According to a lawsuit filed on Wednesday, March 25 in the U.S. District Court in Rochester, Narayanan was contacted by email on October 8, 2014 by Samuel DiSalvo, an accountant with Freed Maxick CPAs P.C. in Brighton. DiSalvo offered Narayanan the option to sell 30% of his vested shares in the private company back to Sutherland Global through a net exercise and share agreement plan. DiSalvo argued that if he was to claim the full number of shares he had earned, Narayanan would have to first pay the company the per-share option price for the number of shares claimed, plus withholding taxes. Moreover, because Sutherland is a privately held company without an established market, DiSalvo stated that Narayanan would not be able to readily sell his shares himself. However, if he took the net exercise deal, the value of the shares he gave up would cover those costs and save him trouble.
The email said that the offer was time-sensitive, and the email gave Narayanan only until October 9 to respond. The executive agreed, sending the required documentation to Sutherland Global on the due date. But on October 21, the company offered to buy back the remaining shares due to him as well, which would immediately give Narayanan access to cash that he would not be able to easily realize otherwise. He agreed, and an email from DiSalvo acknowledged the new, full-share buyback deal.
According to Narayanan’s calculations, cashing in 169,000 of 300,000 vested shares in the October 21 deal should have left the firm owing him $1.9 million. However, despite repeated demands, Sutherland Global has so far refused to pay. Officials from Sutherland Global have declined to comment on the case.
While the case is still pending in the District Court of Rochester, Narayanan’s claims are the perfect example of why you should be careful with your stock option plans. According to one of the basic rules of investing, the higher a stock’s Gross Profit Ratio (GPR), the more timely and lucrative returns can be; as a prominent company, Sutherland Global likely seemed to be in keeping with this rule. However, because the company is privately owned, Naranayan’s ability to sell his shares was limited, circumventing this common rule and directing him into a disadvantageous deal with his former employers. Don’t take your employer’s stock option plan without due consideration: talk to your financial adviser before making any decisions.