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Inquiry Finds Fired Liberty Tax CEO Likely Had Sex in His Office, Sexual Escapades with Staff, Franchisees

After Liberty Tax's board of directors fired founder and CEO John T. Hewitt in September, the franchise company's human resources division received numerous complaints about his risqué sexual behavior, including that he was heard having sex in his office during work hours and was romantically involved with employees and franchisees. The company dug deeper into the matter with an investigation.

According to The Virginia-Pilot news report last Thursday, Liberty Tax interviewed employees for a two-month period after Hewitt's release, and then expanded the scope of its findings to include other allegations against him. One allegation was that the CEO was giving preferential treatment to employees and franchisees whom he was romantically involved with, and that he placed his personal interests above that of Liberty Tax, Incorporated.

The Virginia Beach-based tax preparation franchise company then decided to enlist the services of a high-powered law firm, Skadden, Arps, Slate, Meagher & Flom, to look into Hewitt's behavior. The firm had first been retained in July to examine complaints made to the company's human resources director and ethics hotline by employees who said they overhead Hewitt engaging in sexual activity in his office.

The Pilot news report stated that the review also included investigating allegations that Hewitt hired relatives of female employees he was apparently seeing romantically. The attorneys also learned from staff members that Hewitt scheduled out-of-town meetings in cities where the New York Yankees were playing, so he could attend the ball games. The Skadden attorneys report on its review of the situation was given orally to the full board on September 5, and was then documented in a written report issued to a board committee.

Although Hewitt and his attorney John Paris Jr. did not respond to requests for comments, the company's vice president/general counsel Vanessa Szajnoga stated in an email that Liberty Tax was "not in a position to confirm any such report nor can we discuss internal matters," the Virginia-Pilot reported. She added that Liberty "is a company built upon a strong foundation of integrity and respect for our employees, franchisees and customers." The in-house counsel said the company was fully committed to the principles as outlined in its Code of Conduct, and the behavior asserted in the report "would certainly not be tolerated."

The news report stated that the Skadden law firm determined that Liberty Tax had a "good faith basis" to fire John Hewitt "for cause," but could have opened itself up to a protracted and costly legal fight if it did. It said, "Ultimately, the company fired him "without cause," making him eligible for severance, which amounted to $801,005 in a lump sum payment, 18 months of health benefits and $471,210 in unvested stock awards that had been accelerated."

The internal report stated that in addition to its review of 1,000 emails between Hewitt and several female employees and franchisees, attorneys also scrutinized company credit card charges, including expenses at a New York racetrack. They said they also repeatedly attempted to interview Hewitt about the allegations, but he never made himself available. "Hewitt failed to, in any way, attempt to address the rumors and to alleviate the concerns of the employees. Rather, he continued to make decisions and engage in behavior that further fueled the rumors," the report said.

A Liberty Tax globe newswire dated September 8, 2017 stated that COO Ed Brunot was appointed as the chief executive officer. There was no mention of John Hewitt being terminated from the company on September 5. Hewitt is still the chairman of the nine-member board and has controlling shares in the company. The Pilot article states that allows Hewitt to choose four other members besides himself, including his sister Ellen McDowell and longtime business associate Gordon D'Angelo.

Last Monday, Hewitt replaced two of those board members. Two current members announced they were leaving.

Hewitt's troubled history

John T. Hewitt began his career in the tax preparation business in 1969, while he was a student at the University at Buffalo, by attending an H&R Block tax-preparation course. He eventually worked for the company and became a regional director running over 250 offices. He later met up with Mel Jackson Tax Service and launched what became the Jackson Hewitt tax preparation firm, which began franchising in 1986. The company became public in 1994, and was sold for $483 million in 1997, with 1,345 offices.

Liberty Tax (NASDAQ:TAX) was then founded by Hewitt in 1997 after he was ousted from Jackson Hewitt, The Virginia-Pilot reported. Eventually, the company was ranked by Entrepreneur magazine as its "Franchise 500" list of best franchise opportunities. Next it became one of Forbes "Top 20 Franchises for the Buck" in 2012, identified as the only tax franchise on the list.

Later, Liberty Tax became riddled with criticism and litigation. In 2009, the state of California sued the company for promising customers speedy tax refunds while failing to disclose that they were actually taking out high-interest bank loans on their behalf subject to finance charges and debt collections, a state appeals court ruled in upholding a $1.3 million judgment against Liberty Tax.

Another report said that Liberty Tax franchises were the subject of a class action lawsuit in South Carolina in 2011, accusing the firm of inflating business expenses and producing false information about charitable donations. It also claimed Liberty Tax did not follow through with a guarantee to assist them during the audit process.

Earlier this year, a former girlfriend of Hewitt sued him in Virginia Beach Circuit Court, claiming the franchise executive grabbed her by the throat and pushed her down the stairs inside the house that they were sharing. Hewitt countersued, alleging he was the one injured that night.

The case is pending.

There has also been at least one threat of a lawsuit by three former employees of Liberty Tax, claiming that Liberty Tax was a hostile work environment. They settled with the company for $500,000, despite CEO Hewitt denying the accusation. And another employee and franchisee sought a business loan from Liberty Tax. After the area developer refused the loan, they reached out to Hewitt and were given the loan.

Liberty Tax Service website states that it has more than 4,000 offices in the United States and Canada, with 22,000 experienced tax preparation experts.


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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.