What was the nature of the allegations of misconduct by John T. Hewitt that led to an investigation overseen by the Audit Committee of Liberty Tax, Inc. (Ledgers' parent company) regarding Ledgers?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
Defendant, (Case No. 2017- 0883), Erie County Employees Retirement. System, on behalf of Liberty Tax, Inc. v. John T. Hewitt. Defendant, and Liberty Tax, Inc. Nominal Defendant, Case No. 2017-0914, and RSL Senior Partners, LLC, derivatively and on behalf of Liberty Tax, Inc. v Brunot et al, (Case No. 2:18-cv-00127-HCM-DEM).
Description of the allegations of misconduct: It was alleged that John Hewitt ("Hewitt") maintained romantic relationships with company employees and franchisees and gave them preferential treatment.
John Hewitt's post termination involvement: Hewitt was Chairman of the Board and CEO at liberty tax. Although he was terminated as CEO, Hewitt remained Chairman of the Board because he was the sole holder of the Class B common stock of Liberty. During a period of in-fighting, Hewitt replaced two of the directors of the board and another member resigned. The Chief Financial Officer also resigned. Ultimately, Hewitt reached an agreement to sell his ownership interest in Liberty and relinquish control of the Board. It
was alleged that Hewitt continued to interact with franchisees and area representatives for Liberty during the transition. The Audit Committee of the Board of Directors of Liberty oversaw the investigation of the allegations and the report prepared by the Audit Committee was not provided to Hewitt.
Description of KPMG's reasons for resigning as independent auditor: Liberty filed a Form 8-K on December 11, 2017 with the SEC to publicly disclose that KPMG's resignation was accepted and approved by the Audit Committee of the Board of Directors of Liberty. The 8-K contains a description of the reasons provided by KPMG for his resignation. A copy of the 8-k is attached and incorporated into this Addendum by reference.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
_____________________ FORM 8-K _____________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): December 11, 2017 (December 8, 2017)
LIBERTY TAX, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 001-35588 27-3561876
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, the allegations of misconduct against John Hewitt, then Chairman of the Board and CEO of Liberty Tax, Inc., involved maintaining romantic relationships with company employees and franchisees and giving them preferential treatment. The Audit Committee of Liberty's Board of Directors oversaw the investigation into these allegations; the report prepared by the Audit Committee was not provided to Hewitt.
Following his termination as CEO, Hewitt, as the sole holder of Class B common stock, retained control of the Board. During a period of internal conflict, he replaced two directors, leading to the resignation of another member and the Chief Financial Officer. Hewitt eventually agreed to sell his ownership interest and relinquish control of the Board. It was also alleged that Hewitt continued to interact with franchisees and area representatives during this transition period.
KPMG, Liberty Tax's independent auditor, expressed concerns to the Audit Committee and company management that Hewitt's actions created an "inappropriate tone at the top," leading to ineffective entity-level controls. KPMG also noted Hewitt's replacement of board members around the time media reports about the investigation surfaced. These concerns, along with Hewitt's continued involvement with franchisees and area developers after his termination, led KPMG to question their ability to rely on management's representations and ultimately to resign as the independent auditor.