Execs Took All the Profits, Shareholder Says

     LAS VEGAS (CN) – Directors of publicly traded Payment Data Systems kept the company in the red by paying themselves more than the company earned last year, a shareholder claims in a derivative class action.
     Michael McFarland sued five top executive of the payment processor on Friday in Federal Court, alleging unjust enrichment and breach of fiduciary duty.
     The five defendants were given the power to approve their own compensation in 2008 and have abused their discretion for the past two years, McFarland says.
     Payment Data recorded gross profits of $4.18 million in 2014, and the five defendants “granted themselves compensation valued at $4.53 million in the aggregate,” according to the complaint. In other words, they paid themselves 8 percent more than the company earned.
     In 2013, McFarland says, the five paid themselves salaries and cash bonuses of $724,200 – 74.3 percent of company’s gross profits of $974,896. The company recorded a net loss of $789,039 that year – 92 percent of it attributable to the five directors’ self-enrichment.
     To top it off, McFarland says, as part of their 2014 compensation the officers gave themselves 22 million shares in the company, worth $3.74 million, which “increased their collective corporate voting power from 42.97 percent to 49.97 percent, effectively giving them voting control over the company.”
     In short, he says: “In determining their own compensation in 2014, defendants wrongfully misappropriated economic value and voting power from the company’s minority shareholders, thus harming them uniquely, individually, and in direct proportion to defendant’s benefit.”
     From 2007 through 2012, the officers paid themselves at least $3,141,912 in combined compensation against $7,401,235 in gross profits, the complaint says, citing public filings.
     Payment Data Systems is traded publicly on the OTC Bulletin Board under the symbol PYDS. It closed at 28.5 cents per share with $52.31 million in market capitalization on Monday.
     Named as defendants are CEO and Chairman of the Board Michael R. Long, President and Chief Operating Officer Louis A. Hoch, Senior Vice President Larry Morrison, Senior Vice President and Chief Technology Officer Kenneth Keller, and board member responsible for overseeing management Peter G. Kirby.
     McFarland seeks class certification, disgorgement of excessive compensation, damages and costs.
     He is represented by John Aldrich, who was not immediately available for comment Monday. Nor were officials for Payment Data Systems.

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