Shareholder sues to stop Tile Shop delisting that is set for Friday

A Tile Shop shareholder accused founder Robert Rucker of tanking its shares so he could retake control of the 142-store chain.

The shareholder, a New York hedge fund called Wynnefield Capital, asked a court to stop the Plymouth-based company from delisting itself from the Nasdaq Stock Market on Friday.

The delisting is a pivotal step for Rucker, who is 67, to take back the control of Tile Shop that he lost when the company went public seven years ago, the firm said in the lawsuit.

Tile Shop's announcement on Oct. 22 that it would delist, a step sometimes called "going dark," caused its shares to plunge 68% that day. In the weeks since, Rucker and two of the company's directors, Peter Jacullo III and Peter Kamin, bought up shares to raise their combined stake in the firm to over 40%.

"The Tile Shop board, comprised of a majority of directors who are directly benefiting from the go-dark scheme or are loyal to Rucker, Jacullo and Kamin, is actively breaching its fiduciary duties," Wynnefield Capital said in the lawsuit. "Immediate judicial intervention is warranted."

Tile Shop did not respond to a request for comment Thursday.

Wynnefield Capital typically invests in small-cap stocks and purchased 80,000 shares of Tile Shop earlier this year when they were worth about $320,000, according to Thomson Reuters.

The lawsuit, filed in Delaware, where Tile Shop is incorporated, portrays Rucker as someone who has maneuvered for years to regain control of the firm he started in 1985. His stake was diluted heavily when the company went public in 2012. He was ousted as CEO following a 2014 product-sourcing scandal but remained on the board and returned as interim CEO for 14 months in 2017 and 2018.

In describing Rucker's desire to take control of Tile Shop, the lawsuit cited his 2005 fraud conviction for trying to cheat his ex-wife of shares following their 2000 divorce.

"Rucker was willing to commit fraud to minimize the value of his ownership of Tile Shop to be paid to the mother of his child," Wynnefield Capital said in the suit. "It is not beyond his character to institute a scheme to regain control of the company at the expense of public stockholders."

In addition to stopping the delisting, Wynnefield asked the court to prevent Rucker, Jacullo and Kamin from buying more Tile Shop shares. It also wants the court to put the shares they acquired in recent weeks into a trust, adopt a poison pill that prevents them from buying more shares at a discount and award financial penalties to shareholders.

Wynnefield alleges that Rucker, Kamin and Jacullo knew that the delisting announcement would cause institutional investors who cannot hold unlisted shares to sell, which would drive down the price of Tile Shop shares. Since that announcement, Wynnefield said Rucker, Kamin and Jacullo have bought 6.57 million shares of Tile Shop stock at an average price of $1.60 per share.

On Jan. 1, 2015, Chris Homeister, the company's chief operating officer and a former Best Buy executive, took over as CEO from Rucker. But on Oct. 27, 2017, Tile Shop announced that Homeister was stepping down and that Rucker was returning as interim CEO.

Wynnefield called Homeister "an experienced and sophisticated CEO, who ran the company well" and alleged the board forced him out during a "temporary snag in its growth."

Wynnefield likened the return of Rucker to the CEO spot as "putting the proverbial fox back in the henhouse."