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Liberty Tax Investors File Suit to Oust John Hewitt from Board amid Sex Scandal

Liberty Tax ServiceWith tax season fast approaching, Liberty Tax Inc. investors are scrambling to rid the national tax preparation franchise company of its co-founder, now chairman of the board, John Hewitt, alleging his romantic encounters with at least 10 female employees, and having sex in his office, is seriously damaging the company.

In the case, Asbestos Workers Philadelphia Pension Fund v. John Hewitt, filed in Delaware Chancery Court on December 11, the investment group is asking a judge to order Hewitt to relinquish his controlling stake in Liberty Tax following an internal review that found Hewitt's "improper behavior" was detrimental to the company's equity owners, and only allowing himself "personal enrichment and gratification." The lawsuit claims that Liberty's "value has been harmed by the reputational harm Hewitt has wrought the company." It claims that Hewitt, who was fired last September as a result of the inquiry by New York law firm Skadden Arps Slate Meagher & Flom, also found that Hewitt "gave a sweetheart deal on a tax-return franchise to a girlfriend," without paying the required fee. When she later decided to cash out the business, Hewitt commanded executives to pay her seven times the franchise's value plus $220,000 in cash and stock, the complaint states.

A Fortune magazine article last week said that "Hewitt's refusal to sell his stake has caused so much turmoil at the Virginia Beach-based firm that Liberty delayed an earnings release set for December 6 and watched its auditor, KPMG, resign over Hewitt's continued involvement with the company, the asbestos workers' pension fund said in the suit." The lawsuit states that the pension fund also claims Hewitt has moved to oust directors who opposed him. "Last month, Hewitt removed two directors and replaced them with his own picks, Fortune reported. Another director voluntarily stepped down, and a fourth announced he wouldn't seek reelection to the board "because of the upheaval tied to Hewitt's actions."

Liberty Tax (NASDAQ:TAX) also stated in a press release that KPMG's resignation is due to concerns around internal controls over financial reporting as it relates to the integrity and tone at the top set by Liberty's founder, current chairman and former chief executive officer, John Hewitt. Ross Longfield, chairman of the company's audit committee stated, "We are disappointed that KPMG has resigned, however, we appreciate the lon- term relationship we have had with them."

The company also announced last Thursday that Nick Bates will assume the position of chief financial officer, effective January 1, 2018, succeeding Kathy Donovan.

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