The merger of Select Staffing and EmployBridge brings together two strong and well-respected staffing companies with highly complementary geographic footprints and approximately $3 billion in combined annual revenue. That was then; a line from an official release when the Select-EmployBridge merger was first announced in January. 

This is nowJust a week after the February closing, Steve Sorensen, Chief Executive Officer of Select Staffing, who was supposed to be Vice Chairman of the Board of Directors of the new company, was instead booted by the board amid allegations that he improperly transferred $2.7 million to an entity he controlled.

The Pacific Coast Business Times says Sorenson denied the allegations, that his firing was retaliation against him for filing a federal suit against the company formed to facilitate the merger. 

The lawsuit, reportedly filed in U.S. District Court in Los Angeles on February 13, alleges he was improperly removed from his CEO role and given a largely ceremonial title of vice chairman. 

Sorensen’s attorney, Russell Wolpert, said the board's actions had the effect of “driving him out of the business he founded."

The board countered with their own statement, saying "Stephen Sorensen’s lawsuit is a transparent attempt to distract from his actions that were the basis for the board’s decision to terminate him for cause."

Pre-Lawsuit Puffery

What a difference a month makes. Before the accusations and lawsuits, both sides were saying nothing but good things about one another. 

“This compelling transaction provides a unique opportunity to create the premier North American staffing company, with an expanded suite of services, broader geographic reach and enhanced professional opportunities for our combined team,” said Sorensen in January. “We have tremendous respect for EmployBridge and its management team."

And here's what the Atlanta-based EmployBridge had to say. 

“We are excited to join forces with Select Staffing, a distinguished industry leader. Building on our shared values and complementary footprints, our new company will be even better positioned to deliver significant client benefits and enhanced levels of service,” said Tom Bickes, EmployBridge CEO, in the January announcement. "I am thrilled to partner with the Select Staffing family as we embark on this exciting next chapter of growth.”

Legacy Of Legal Wrangling

Of course, lawsuits and accusations and legal wrangling is nothing new to Sorensen and Select Staffing. 

In April of 2014, Select announced it filed for a pre-packaged voluntary Chapter 11 bankruptcy after reaching a re-structuring deal. The filing listed between $50 million and $100 million in debts and between $100 million and $500 million in assets for the Select family of staffing companies, including Remedy, Westaff and Select itself. 

The Chapter 11 filing followed years of negotiations between Sorensen and creditors over debt restructuring. 

Since 2000, Select bought or merged with over 50 staffing firms nationwide, including Checkmate Staffing, First Site Staffing, Staffing Services and Progressive Personnel Services, National Careers Corporation, and CT Engineering, Ablest Inc., Tandem Staffing Solutions, and others.

The acquisitions came with a price though, literally and figuratively, as Select reportedly amassed over $535 million in debt, according to the Pacific Coast Business Times

Searching for relief at a time when the credit faucets were fully turned on, Select secured a leveraged recapitalization with Bank Paribas for $400 million, with the option to borrow up to $200 million more if additional acquisition opportunities presented themselves.

The deal reportedly included an $80 million dividend to Sorensen, but because the company was reportedly so heavily in debt at the time, the payout was structured as a loan to an LLC controlled by the Sorensen family.

California’s State Compensation Insurance Fund came along and tried to unwind that deal though under the filing of a Racketeer Influenced and Corrupt Organizations (RICO) Act claim in U.S. District Court in Los Angeles.

Here’s why. Back in 2011, the state insurer was awarded $50 million from Select Staffing after a jury found the company guilty of fraud.

Piggybacking Allegations

The state alleged in a lawsuit Select avoided paying tens of millions of dollars in premiums by “piggybacking” on a workers compensation policy purchased by a now-defunct professional employment organization.

In this case, “piggybacking” refers to Select Staffing allegedly gaining a lower experiencemodification by making its workers employees of a PEO named Onvoi Business Solutions Inc., sources said.

Insurers use experience modifications to calculate a policyholder's losses and premiums. The lower the experience modification, the lower the premiums; and sources said Onvoi had an experience-modification of about 70 while Select Staffing's was closer to 300.

Back to the RICO lawsuit. That suit alleged that $80 million loan to Sorensen was made at a time the company was insolvent, or caused the company to become insolvent, thus rendering them unable to pay that $50 million jury award.

Sorensen and Select fought back on that award though, and in January of 2013 entered into “a confidential settlement of all outstanding litigation matters with the California State Compensation Insurance Fund.”

IPO? No...

Back in 2009, Sorensen attempted to take the company public through Atlas Acquisition Holding Corp., a company that was formed for the express purpose of acquiring an operating business.

The proposed deal was valued at $840 million and the combined company was to retain the name of Select Staffing as it was due to be listed on the New York Stock Exchange.

However, the deal was ultimately shelved, and articles in the local Santa Barbara business papers reported debt threatened to strangle the company as they struggled to meet obligations.

The pressure was turned up when the company’s principal lender, Bank Paribas, sold off the loans it had made to Select Staffing to a group of about 100 hedge fund creditors.

They were hungry for payback. And some of them were apparently not too pleased at the way Sorensen had run the company, and weren’t going to wait patiently for a structured re-org.

So in U.S. District Court, a group of senior creditors who had entered into a $300 million line of credit with the company back in 2007, filed suit against Sorensen himself.

This is the preliminary statement in the filing of Bowery Opportunity Fund et al. vs. D. Stephen Sorensen, an individual.

“Since at least 2007, D. Stephen Sorensen, who is the Chief Executive Officer and Chairman of the Board of Directors of Koosharem Corp.(doing business as the Select Family of Staffing Companies) has operated Koosharem as his own personal piggy bank, enriching himself and his family with questionable loans and sweetheart deals…rather than manage Koosharem as required under California law, Sorensen has managed the Company into the ground.”

The creditors stated, “They have all suffered losses as a result of multiple breaches of fiduciary duty” committed by Sorensen.

Sorensen's Start In Staffing

Select Temporaries was founded in Santa Barbara, California, in the mid 1980’s, by Trishna Paulson and her father Fred.

Trishna’s sister, and Fred’s daughter, Shannon, was introduced to, and eventually married, a Brigham Young University accounting student by the name of Stephen Sorensen after he returned from a Mormon mission in Japan.

After both finished school, Sorensen got a referral from one of his father-in-law’s business associates, and landed a job as an entry-level accountant for Arthur Andersen in downtown Los Angeles.

Following a brief stint there, the young couple moved to Chicago where Sorensen got his MBA from the University of Chicago.

With advanced degree in hand, Sorensen spent some time as a loan officer for Mark Twain Bank in St.Louis, Missouri.

Soon after, he got his start in the staffing industry, joining Select in 1987 as a Branch Manager, while opening the company’s third office.

He then moved up to Regional Manager, and was appointed President in 1995 as the company began an acquisitive growth strategy, purchasing an average of two competitors a year.

In 1999, Shannon and Stephen Sorensen became the controlling shareholders through a leveraged recapitalization that facilitated the retirement of Select’s founders, and eventually saw Sorensen take over the Chairman and CEO role.