OnPoint experts Christine Davis and Johan Walden recently provided trial testimony in a high-profile breach of trust case involving one of the heirs of the McClatchy newspaper empire and Gary Pruitt, the current CEO of Associated Press. The case involves allegations that Gary Pruitt, then CEO of The McClatchy Company, along with other McClatchy Company executives, mismanaged trust assets and ignored the conflict-of-interest that arose from their dual role as trustees of the subject trust and members of the Board of The McClatchy Company.
The case was brought by Carlos McClatchy, an income beneficiary of a once-large trust established in 1974 by former Company President, Eleanor McClatchy. The petitioner alleged that co-trustees who simultaneously served on the Board of The McClatchy Company breached their fiduciary duties and ignored the economic interests of trust beneficiaries when they embroiled the trust in a highly leveraged $4.5 billion acquisition of Knight Ridder, Inc. completed in June 2006. The trust’s investment assets were entirely concentrated in stock of The McClatchy Company. Stock in the McClatchy Company is currently trading around $8 per share, representing a 99% decline since its peak in 2005, after considering the effect of stock splits.
The bench trial took place in San Francisco Superior Court, lasted approximately six weeks, and involved testimony by OnPoint experts Dr. Johan Walden and Christine Davis.
Dr. Johan Walden, a tenured Associate Professor of Finance at UC Berkeley’s Haas School of Business, testified on matters related to investment risk and portfolio diversification, which included a quantitative analysis of risk arising from the Knight-Ridder acquisition. Dr. Walden applied modern portfolio theory and concluded that the risk of a large loss could have been avoided through diversification of the trust’s assets. To learn more about Dr. Walden, click here.
Christine Davis, CPA, CFF, CVA, CGMA, the Director of Forensic & Financial Accounting at OnPoint Analytics, testified on matters related to economic damages. Using three methods with statutory bases in the California Probate Code and Delaware General Corporations Law, Ms. Davis calculated economic damages suffered by the trust and Carlos McClatchy to be in excess of $280 million.
Carlos McClatchy is represented by Gilmur R. Murray and by Mark Mosley of Seiler Epstein Ziegler & Applegate LLP.