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In November 2008 we discussed how the DOL Sued the Board of Directors for Alleged ERISA Violations and misusing ESOP assets. The DOL has announced that they have obtained consent judgments recovering more than $12 million for employee stock plan participants in California and Washington:

SAN FRANCISCO — The U.S. Department of Labor has obtained consent judgments providing for restitution of more than $12 million by plan officials and service providers involved with the employee stock ownership plan sponsored by The Employee Ownership Holding Co. of Stockton, Calif., and Fife, Wash. The judgments also provide for release of a fund currently holding more than $11 million, thereby making more money available to provide benefits to the ESOP's participants and beneficiaries.

"This legal action promises to recover millions in retirement dollars for workers and retirees as entrusted to plan fiduciaries and service providers," said Secretary of Labor Hilda L. Solis. "These settlements send a clear message that the Labor Department will not tolerate the blatant misuse of pension assets at the expense of workers and their families."

Under the judgments and a settlement agreement filed in a related private lawsuit, the settling defendants must pay $8 million in cash into a settlement fund, pay $800,000 in civil penalties to the federal government and return property to The Employee Ownership Holding Co. with an estimated value of $4 million for the benefit of the ESOP and its participants.

Under the judgments with the department, the defendants will be barred for at least 10 years from serving in a fiduciary capacity to plans, and the attorney service providers will be required to comply with strict requirements in connection with their future involvement with employee benefit plans.

In November and December 2008, the Labor Department sued defendants Clair R. Couturier Jr.; David R. Johanson and his firm Johanson Berenson LLP; Robert E. Eddy; James Roorda; Matthew Donnelly and his firm Business Appraisal Institute; and David L. Heald and his firm Consulting Fiduciaries Inc. for violating the Employee Retirement Income Security Act in connection with improper transactions that took place in 2004 and 2007. In 2004, Eddy approved the stock purchase by The Employee Ownership Holding Co. from Couturier without a financial valuation supporting the amount paid to Couturier. As part of that transaction, Couturier received approximately $34.4 million in cash and property in exchange for stock he owned in the ESOP (valued by the ESOP at less than $500,000 at the time) and other non-ESOP compensation worth millions of dollars less than the amount Couturier received. Couturier received $26 million in cash, property in Palm Desert, Calif., $2.7 million in cash to pay taxes on that property and other compensation.

Among other things, the Labor Department's suit alleged that Donnelly, a convicted felon, and his firm were hired to justify the overpayment in cash and property paid to Couturier in exchange for stock he owned in the ESOP and other consideration. In October 2009, the court entered a consent judgment between the department and Donnelly permanently barring him from serving in the future as a fiduciary or service provider to any plan. Earlier this month, the court granted the secretary of labor's motion to appoint an independent fiduciary for the ESOP.

The legal action resulted from an investigation conducted by the Labor Department's Employee Benefits Security Administration's San Francisco Regional Office. In fiscal year 2009, the department achieved monetary results of $1.3 billion in pension, 401(k), health and other benefits for millions of American workers and their families. Employers and workers can contact EBSA's San Francisco office at 415-625-2481 or toll-free at 866-444-3272 for help with problems relating to private sector pension and health plans.

Solis v. Couturier
Civil Action Number 2:08-CV-02732-RRB-GGH

We previously discussed how, in the related private lawsuit (Johnson v. Couturier, No. 08-17369), a district court found that an ESOP-owned company was not allowed to Advance Defense Costs under Corporate Indemnification Agreements because the participants had shown a substantial likelihood of success and would effectively lack recourse against the fiduciaries. We also discussed some fiduciary best practices, including Fiduciary Best Practices: Fees and Liability Insurance Coverage, Appointing a Non-Company Officer as Fiduciary, and The Importance of Fiduciary Liability Insurance.

Stockton workers win big settlement discusses the history of the legal action:

In 2004, with Eddy's approval, the holding company paid Couturier $26 million in cash, purchased the Palm Desert home for him and provided $2.7 million to cover taxes on the property and provided other compensation in exchange for stock valued at less than $500,000, the Labor Department said.

Employee shareholders of the holding company mounted a private, class-action lawsuit against the directors and executives in 2005.

Then, in 2007, when The Employee Ownership Holding Co. sold Noll and two other manufacturing plants for a reported $61 million, officials improperly withheld the proceeds to fund a legal defense or possible settlement of the private lawsuit, the Labor Department said. The agency followed with its own civil action over violations of federal labor law in late 2008.

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