NIC Settles Shareholder Suit Tied to Executive Perks

Published: 24 August 2011

NIC Inc. expects to settle a shareholder dispute connected to a recent Securities and Exchange Commission investigation into perks for executives, including former CEO Jeff Fraser.

The lawsuit, filed in August 2010 against Olathe-based NIC (Nasdaq: EGOV), Fraser and other current and past company executives in federal court in Kansas City, Kan., alleged breach of fiduciary duty.

The plaintiff shareholder accused NIC of failing to fully disclose details surrounding the SEC investigation into NIC executives’ reporting of personal expenses. The plaintiff also took issue with NIC’s allegedly flawed internal audits and for allowing Fraser to remain on the board at the time of the investigation.

The company, which develops and runs government websites, settled the SEC matter after a group of current and former executives agreed to pay $2.8 million, NIC disclosed in January. The company and Fraser denied any wrongdoing.

But the shareholder lawsuit continues, with the parties reaching a pending settlement in the summer that goes before a federal judge for final approval Oct. 11, NIC announced Wednesday.

On July 8, a judge gave preliminary approval to the settlement, in which NIC has agreed to pay $495,000 in legal fees and $5,000 to plaintiff Gene Sidore. It also agreed to practice certain corporate governance procedures.

NIC expects its directors’ and officers’ insurance to cover the payments.

Fraser has agreed to pay NIC $225,000, according to the proposed settlement, which can be downloaded on NIC’s website.

NIC and Fraser also have agreed to release each other from claims.

At the time of the lawsuit filing, the shareholder criticized the company for spending $4.4 million to address the misuse of $1.1 million, saying the defendants’ actions damaged the company’s credibility.

“These amounts are not only material to this small company but make no sense,” the plaintiff said in his complaint.

An attorney for the plaintiff, Christopher Joseph of Joseph & Hollander LLC in Topeka, didn’t immediately return phone and email messages.

According to the terms of the proposed settlement, the plaintiff agreed to dismiss the suit with prejudice, meaning he can’t re-file similar allegations.

“We are pleased this matter is drawing to a close,” NIC CEO Harry Herington said in a written statement. “We continue our commitment to providing value to our stockholders with strong corporate governance and solid financial performance.”

Fraser’s attorney, Charles German of Rouse Hendricks German May PC in Kansas City, said his client declined to comment.

NIC paid about $500,000 in legal fees during its second quarter related to the SEC investigation. The company received a $600,000 reimbursement from the executives’ liability insurance carrier during the quarter for prior legal expenses.

Any objections to the settlement must be filed with the court by Sept. 27.

By Ric Anderson

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