Thalhimer employee stock battered by MGT fallout

cushman wakefield hq

Cushman & Wakefield | Thalhimer’s headquarters in Short Pump. (BizSense file photo)

The implosion of MGT Construction – the local builder that last month filed for Chapter 7 bankruptcy liquidation – has dealt a blow to parent company Thalhimer’s employee stock ownership plan.

Letters and account statements sent last month to shareholders and obtained by BizSense, show that the fallout from MGT’s financial issues forced Thalhimer to restate its financials for 2014 and 2015 – a revision that trickled down to the shares of its ESOP, a type of plan some privately held companies offer as a benefit to employees to give them an option for an ownership stake.

The revised 2015 statements, for example, peg the ESOP shares at $3.20 apiece – a 91 percent decline from original 2015 statements that showed a value of $34.42 per share, according to the letters.

Long-delayed year-end 2016 account statements were also sent last month, showing that the per-share price bounced back that year to a valuation of $12. But that was still 67 percent less than the $37 per share value from June 2016, when the ESOP paid that price to purchase the remaining original stock from a dozen longtime employees and executives who still had shares they obtained prior to the creation of the ESOP in 2003.

That deal, aimed at getting the company closer to being 100 percent employee-owned, ultimately had to be unwound in early 2017 because of the company’s realization that the share price was overpriced due to MGT’s negative effect on Thalhimer’s bottom line.

In the letters, dated Feb. 5, Thalhimer CEO Warfield told shareholders: “As you may know, the company restated its audited financial statements for 2014 and 2015 tax years due to circumstances involving the company’s subsidiary, MGT Construction.

“The company was unaware of the issues related to MGT Construction when the original statements were issued and the company’s auditor did not discover the errors during the annual audit process.”

The circumstances Warfield referred to included losses fueled in part by an accounting scheme perpetrated by an undisclosed number of MGT’s employees. Thalhimer, as disclosed in court records in an ongoing lawsuit against its top executives, has said it discovered the scheme in fall 2016.

Emphasizing the share price uptick in 2016 and MGT’s bankruptcy, Warfield said the share value reached “the bottom” in 2015 and rebounded due to the performance of the company’s other divisions – its Cushman & Wakefield  | Thalhimer brokerage and Thalhimer Realty Partners development arm.

mgt construction sign

An MGT Construction sign on Porter Street in Manchester. (Kieran McQuilkin)

“We expect the company’s stock value to continue on an upward trend based on the projected performance of our core businesses and shut down of MGT Construction,” Warfield said in the letter.

In a separate round of letters last month, some former Thalhimer employees who are still participants in the ESOP were told cash distributions they received in 2016 for yearend 2015 were based on the original, higher share price and therefore they were overpaid.

The letters asked those shareholders to pay the excess back into the ESOP, and they were given until Feb. 28 to make those payments. Thalhimer last week instead decided to make the repayments to the ESOP on behalf of those participants.

In an email to BizSense last week, Warfield said the company believes the “negative impact of MGT’s financial struggles is substantially behind us now.”

“Unfortunately, the financial problems at MGT, while a subsidiary, did have a significant impact on the ESOP’s value for the years involved,” Warfield said in the email. “The recent (MGT) bankruptcy is the final step in closing down that operation. No one is pleased with a loss in value.”

Warfield stressed that the ESOP is in a “very strong financial position.”

“It has no debt and holds Thalhimer stock and substantial cash that the company has contributed over a number of years,” Warfield said. “The stock price fluctuates over time. There are no guarantees for any of us.”

Warfield said the delays in getting 2016 account statements out to shareholders were caused by the extra time it took outside auditors to review and rework the annual financials, which were needed to calculate the share price.

“We understand the frustration with the delay we all experienced in getting information this past year,” he said. “The process of restating our financials took much longer than we had hoped or expected.”

Warfield said the company has held multiple meetings with its more than 400 employees to keep them abreast of all that has happened.

Reiterating comments he’s made in recent months, Warfield maintained that Thalhimer overall is “thriving.”

“We are hopeful that our 2017 financial performance will lead to increased stock value, which will benefit all ESOP participants and shareholders alike,” he said.

Lee Warfield

Lee Warfield

On Wednesday, attorneys for Warfield and other Thalhimer executives will appear in Richmond federal court for the latest hearing in a lawsuit filed against them in October by Steve Brincefield, the company’s former property management head.

The defendants in the suit are Warfield; former Thalhimer chairman and former longtime head Paul Silver; executive vice president Evan Magrill; CFO David Dustin; Jeff Bisger, former head of what’s now Thalhimer Realty Partners; and Lance Studdard, an employee stock plan consultant hired by the company to act as trustee of the ESOP.

Brincefield, who retired from Thalhimer in 2012 after three decades, claims the executives had a hand in wrongfully depleting the value of the ESOP by millions of dollars in part to allegedly cover up troubles at MGT.

Brincefield is also the lone holdout of the original shareholders who has refused to sell his shares to the ESOP.

Thalhimer has not commented broadly on the lawsuit, but Warfield did say last week that Brincefield’s allegation that former longtime MGT president Michael Logan had “admitted to participating in an accounting scheme” is false.

Logan left the company in January.

Warfield would not comment on how big of a hole Thalhimer has had to fill to make up for the financial mismanagement attributed to MGT. He pointed to the construction company’s initial bankruptcy filing, which shows it has liabilities of between $10 million and $50 million, but assets of only $100,000 to $500,000.

Asked how irregularities at MGT could have gone unnoticed until 2016, Warfield said he could not comment in detail.

“We expect that the answer to this question will become clear through the relevant court proceedings over the coming months,” he said.

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Eric Robison
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Eric Robison

Michael – You’ve been working on this story for over a month and still couldn’t quite get it right! ESOP shares are not an OPTION for employees, they are GIVEN to employees with no financial investment. Why don’t you do some investigative reporting to see how many other companies in the CRE industry provide such a benefit to their employees. Of course the stock is down due to the issues surrounding MGT but as you and your readers know stock prices often fluctuate with the performance of the company. It’s unfortunate for those at Thalhimer that left or were dismissed… Read more »

Curtis Mummau
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Curtis Mummau

“Positive thinking is more than just a tagline. It changes the way we behave. And I firmly believe that when I am positive, it not only makes me better, but it also makes those around me better.” — Harvey Mackay

The quote is how I have conducted business for the firm for over 23 years and will continue to do so for the benefit of our clients, tenants, and associates.

Mark Slusher
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Mark Slusher

As a Thalhimer employee of over over 18 years, I am saddened by what must be in my view a disgruntled employee’s attempt to tarnish the reputation of an excellent company and corporate citizen. Thalhimer is a private company. What could be gained other than ill intent toward the Company to share its internal memos and valuation information? Thalhimer has treated me like family since the day I joined the Company and has a corporate culture that encourages honesty and collaboration among all its employees. I am looking forward to putting this matter behind us as nothing more than a… Read more »

Bruce Bigger
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Bruce Bigger

When I joined Thalhimer in 2006, a commercial real estate veteran in Richmond, not working at Thalhimer, told me that my best path in commercial real estate in Richmond was Thalhimer, due to their platform and benefits offered. Membership into the ESOP was one of those benefits that the company offered as a bonus, not an option. The ESOP promotes employee engagement, loyalty and accountability, all of which positively impact the most important part of our business, our clients. Disappointing that some are trying to turn a positive into a negative, but it is not deterring current employees from focusing… Read more »

Birck Turnbull
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Birck Turnbull

Your reporting attempts to link MGT Construction’s closure and Thalhimer’s downgraded stock price with the claims of a disgruntled former employee’s a frivolous lawsuit. As a non management employee, I stand behind the integrity of the Thalhimer leaders named in the suit. Despite your inferences, their actions, to a person, have been legal, above board, and carried out in an attempt to make the most of MGT Construction’s poor 2015/2016 performance. I contributed nothing to the ESOP, yet even at the lower share price, it still has value equivalent to a healthy 401K plan. (Incidentally, Thalhimer also provides me with… Read more »

Connie Jordan Nielsen
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Connie Jordan Nielsen

As a long time employee of Thalhimer and a large ESOP share owner, I was definitely impacted by MGT’s failure and the drop in the share price. Unfortunately, these negative articles are just as damaging as they cast Thalhimer in a light of suspicion that from my perspective is unwarranted. The ESOP shares were given to me and the other employees and although the share price has dropped, I fully expect it to rebound, and even at it’s current value is a large benefit employees of most other companies don’t receive. I would ask those that are feeding this information… Read more »

Jeff Cooke
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Jeff Cooke

. During my 30 year tenure at Thalhimer I have seen, and helped, the company grow into a respected real estate powerhouse in Virginia. One of the great benefits to all employees, not just brokers, is the ESOP program. Everyone gets shares of stock every year with no personal investment or liability. The demise of MGT Construction is indeed unfortunate and people will suffer losses. It is my firm belief that the Thalhimer stock will rebound quickly and continue to grow in value for the benefit of all of my associates at the firm who show up every day to… Read more »

Scott Douglas
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Scott Douglas

I have been an employee with Thalhimer for 32 years . In that time , Thalhimer has always presented itself as a forward thinking company with a highly ethical business model along with a strong family value type atmosphere . I’m proud of our commitment to the community and the good we have done for many local charitable organizations over the years . I support the company’s efforts to provide our employees with 401K and ESOP opportunities . The truth should be forthcoming through the Judicial process and I truly believe Thalhimer will be vindicated for the negative exposure it… Read more »

Paula English
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I have been fortunate enough to be an associate of Thalhimer for 28 years – and I am appreciative of the fact that Thalhimer offers the benefit of an ESOP – stop and think about it — it’s ‘found money’, no financial input at all – we simply benefit for walking through the door each day and doing our jobs – and we do it well! I’m steadfast in my strong belief of this firm, our leadership, and our valued associates – there are none better. I am proud of this company, the unwavering focus we have to continue to… Read more »

Brian Berkey
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Brian Berkey

Before starting at Thalhimer in 2007 I considered commercial real estate companies up and down the east coast. I was attracted to Thalhimer’s leadership, client first mentality, culture, talent, platform and employee benefits (such as the ESOP), and quickly realized I didn’t want to work anywhere else. Thalhimer is a terrific company, and has been recognized regularly for that reason. I stand behind our leadership and the integrity of this firm. This is an incredible place to work and I’m proud to be part of it.

Robin Edmonds
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Robin Edmonds

I have been an employee with Thalhimer since May of 1974. This company has become my second family throughout the years and I have nothing but positive things to be said. The opportunity and education that Thalhimer has afforded me has been nothing less than stellar. I am confident that this issue will in time be overcome and the company as a whole will continue its growth and contributions to the cities and states where it is located. I have respect for those who have developed the company’s growth over the 40 years that I have been a part of,… Read more »

Elaine Lally
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Elaine Lally

As one of the rank and file employees, I have worked for Thalhimer for 44 years. I feel extremely blessed to have found a home with this company and those associated with us. They have been good to me with raises and bonuses through the years. They provide a 401-K and then added the ESOP. All of these monetary enhancements are not afforded to many people in this city. As I am semi-retired, I, more than anyone with the company, felt the impact of the closure of MGT Construction. BUT, my ESOP valuation 2016 is less than $900 down from… Read more »

Mark Douglas
Guest

I know that writing about the fire brings more press than the water that puts it out, but I am disappointed in this article. While we cannot discuss the legalities of what is going on, I can say there are always “what if’s”. What if Thalhimer did not GIVE their employees ESOP stock? What if Thalhimer did not provide their employees with a 401K, with employer match, option? What if a disgruntled former employee, that was GIVEN ESOP stock didn’t have a vendetta? What if our employees did not absolutely love this firm? Just as the stock market goes up… Read more »

Matt Reechard
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Matt Reechard

Laughed at a series of comments

Rob Hargett
Guest
Rob Hargett

I have dealt with this company for over 25 years. Nothing but the best in terms of professionalism and integrity. This is just a bump in the road and these folks will work through it. customers like me will be there to support them because they get the job done. It’s unfortunate that “BS” decided to stoop low for ratings again. Mother Thalhimer takes care of her folks. Those of us in the industry know the truth.

Kevin T. McFadden
Guest
Kevin T. McFadden

I have done business with the brokerage arm of MGT for decades, they are the best Richmond, and for that matter, the mid-atlantic has to offer. dishonest employees happen, MGT has stepped up and done the right thing, give credit where credit is due.

William Blair
Guest
William Blair

It seems the bigger question is how Thalhimer, as the parent, did not see the issues from their construction company. How did they miss it before it got this big? They say the auditors should have caught it (which is true), but why didn’t Thalhimer notice what appears to have been ongoing problems?