They are known as ESOT’s or ESOP’s. The one is a trust and the other a plan. Both transfer ownership to the employees who then buy the company from the owners. I have successfully defended one owner from a multi-million dollar claim in a DOL lawsuit here in Iowa.
So what’s the rub? For employees you have to ask yourselves whether buying this company from the owner is a good idea and, if it is, at what price. To answer that question employees need to understand the company and how to value it. Because paying too much is as bad as paying even one dollar from a company that is heading to bankruptcy court.
If you are involved with an ESOT you may find this news item useful. If we can help you with understanding the issues in your stock ownership case give Attorney Lombardi a call.
US LABOR DEPARTMENT’S ACTIONS RECOVER $7.1M FOR WORKERS IN AIT LABORATORIES EMPLOYEE STOCK OWNERSHIP PLAN
Recent $3.47M judgment restores losses associated with overpriced company stock
INDIANAPOLIS – The U.S. Department of Labor’s Employee Benefits Security Administration has reached a settlement restoring an additional $3.47 million directly to AIT Laboratories Employee Stock Ownership Plan, for losses associated with the plan’s 2009 purchase of overpriced company stock.
The “Agreed Order and Judgment,” entered on May 25, 2016, in U.S. District Court, South District of Indiana, Indianapolis, resolves the department’s lawsuit alleging that the plan’s trustee, PBI Bank Inc., and AIT’s Chief Executive Officer, Dr. Michael A. Evans, violated the Employee Retirement Income Security Act. The alleged violations occurred when PBI authorized the plan’s purchase of AIT Holding Company Inc., stock from Evans and other AIT executives, for an amount far higher than the stock’s fair market value.
Combined with two other previous settlements of suits filed by the department, EBSA and its attorneys have recovered approximately $7.1 million in direct monetary relief for the AIT ESOP’s participants and beneficiaries.
AIT Holding Company Inc. is the plan administrator and plan sponsor of the ESOP. It is also the parent of American Institute of Toxicology, Inc., that does business as AIT Laboratories.
“These settlements restore to workers the stake they have in the company’s success,” said Assistant Secretary of Labor for the Employee Benefits Security Administration Phyllis C. Borzi. “Too often, we see purchase price manipulation and other schemes that benefit corporate leadership at the expense of employees. This is unjust and unlawful under regulations which protect these investments for employees’ long-term future.”
In September 2014, the department reached a settlement with AIT to pay $2.1 million to the ESOP. In October 2014, other AIT executives paid $1.5 million to the ESOP in a second settlement with the department.
In addition to direct monetary relief to the plan, the recent order with Evans and PBI does the following:
Directs AIT to issue additional AIT stock to the ESOP, worth approximately $300,000.
Grants the ESOP a $5.9 million interest in certain properties controlled by Evans.
Requires Evans to forgive a portion of his loans to AIT, worth approximately $2.5 million to the ESOP, and to share with the ESOP a portion of any future sale of his AIT stock.
Taken together, these three settlements represent $7.1 million in direct monetary relief to the ESOP and promise the ESOP the majority of the benefit of any future sale of AIT.
During the time of the alleged violations, PBI – a subsidiary of Porter Bancorp of Louisville, Kentucky – served as the plan’s trustee. In an earlier, separate action brought by the department, PBI agreed to be barred permanently from serving as a fiduciary or service provider to any ERISA-covered plans in the future, except in very limited circumstances.
AIT Holding Company Inc. primarily provides pharmaceutical drug identification and quantification services for medical, clinical and forensic purposes. As of Dec. 31, 2014, the AIT Laboratories Employee Stock Ownership Plan had 218 participants.
Investigators with the EBSA’s Cincinnati Regional Office conducted the probe that led to the suit. The department’s Office of the Solicitor in Chicago and Washington, D.C. litigated the case.
For help with problems related to private sector retirement and health plans, employers and workers can reach Employee Benefits Security Administration’s Cincinnati office at 859-578-4680 or toll-free at 866-444-3272.
Additional information can be found at http://www.dol.gov/ebsa.
Court: U.S. District Court, South District of Indiana, Indianapolis
Docket Number: 1:14-cv-01429-SEB-MJD
EBSA News Release: