Last week we discussed Johnson v. Couturier, 2007 WL 3151802 (E.D. Cal. October 26, 2007) in Corporate Indemnification Limited to Amount Covered by Fiduciary Insurance? In a related case, the DOL announced that they have sued the board of directors for alleged ERISA violations:
SAN FRANCISCO – The U.S. Department of Labor has sued the board of directors of The Employee Ownership Holding Co. of Stockton, Calif., and Fife, Wash.; trustees of the company's employee stock ownership plan (ESOP); its attorney; certified public accountant and valuation advisor for alleged violations of the Employee Retirement Income Security Act (ERISA). The lawsuit alleges that the defendants imprudently used ESOP assets to purchase company stock from President and Chief Executive Officer Clair R. Couturier Jr. at an inflated price, and engaged in transactions that caused millions of dollars of harm to the ESOP and its participants while enriching the defendants.
"This legal action seeks to recover millions of dollars on behalf of the workers and retirees who are counting on the pension plan for their retirement security," said Secretary of Labor Elaine L. Chao.
According to the suit filed in federal district court in Sacramento, Calif., Couturier; 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. violated ERISA in connection with transactions in 2004 and in 2007.
The suit alleges that in 2004, ESOP trustee Eddy approved the stock purchase 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 from the ESOP 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, a $5.5 million property in Palm Desert, Calif., $2.7 million in cash to pay taxes on that property, a $200,000 car and a country club membership.
Eddy and Johanson hired convicted felon Donnelly and his firm to justify the overpayment to Couturier. The defendants also engineered a way to funnel the $26 million in cash into Couturier's individual retirement account as a rollover of his ESOP account. Eddy and Roorda, with the assistance of Johanson, convinced Couturier to hire them to manage a portion of the millions in ill-gotten gains paid to Couturier.
In 2007, Heald and his firm (the independent fiduciaries of the ESOP), along with Eddy, allegedly approved the sale of the company under an arrangement in which the ESOP and its participants would receive distributions only after millions in improper indemnification claims were paid to defendants Johanson, Eddy and Couturier. As part of this arrangement, Eddy also received a personal bonus of more than $1.3 million as a result of his fiduciary acts.
The suit seeks a court order requiring the defendants to restore to the plan all losses with interest, as well as return all fees and amounts illegally received by them. The suit also asks the court to require Eddy to return $1,382,724 in kickbacks, remove Heald and Eddy as plan fiduciaries, and permanently bar all the defendants from serving in a fiduciary or service provider capacity to any plan governed by ERISA in the future.
The suit resulted from an investigation conducted by EBSA's San Francisco Regional Office. In fiscal year 2007, the Labor Department achieved monetary results of $1.5 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.
CA Firm Charged with Misusing ESOP Assets also discusses the suit.