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ARTICLE · 14 JULY 2014

DOL Settlement Is A Cautionary Tale For ESOP Trustees

Bradley Arant Boult Cummings LLP
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The Department of Labor recently settled a case involving an employee stock ownership plan that provides guidance but also a warning for trustees and employers.

United StatesEmployment and HR
David Joffe
David Joffe
Gordon Nichols
Gordon Nichols

The Department of Labor (DOL) recently settled a case involving an employee stock ownership plan (ESOP) that provides guidance but also a warning for trustees and employers contemplating ESOP transactions that later go awry. In Perez v. GreatBanc Trust Co., the DOL sued GreatBanc Trust Company (GreatBanc), the trustee of the Sierra Aluminum Company's ESOP, claiming that GreatBanc relied on a flawed appraisal report to support the ESOP's purchase of 3.4 million shares of company stock for $53 million. The DOL claimed that GreatBanc failed to adequately inquire into an appraisal that presented unrealistic and aggressively optimistic projections of the company's future earnings and profitability; failed to investigate the credibility of the assumptions, factual bases, and adjustments to financial statements that went into the appraisal; and asked for a revised valuation opinion in order to reconcile the higher purchase price the trustee agreed to pay with the lower fair

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