LABOR DEPARTMENT SUES TO RESTORE VALUE TO AN EMPLOYEE STOCK-OWNERSHIP PLAN

FROM:  U.S. LABOR DEPARTMENT 
Labor Department files suit to restore losses to the Miller's Health Systems Employee Stock Ownership Plan

WARSAW, Ind —The U.S. Department of Labor has filed a lawsuit in U.S. District Court to recover losses to the Miller’s Health Systems, Inc., Employee Stock Ownership Plan. The suit alleges that PBI Bank, Inc., the trustee of the plan, authorized the purchase of company stock for $40 million, an amount far in excess of the fair market value of the stock. The suit also alleges that PBI Bank approved financing for the transaction at an excessive interest rate. Miller’s Health is a Warsaw-based company that manages long-term care and assisted-living facilities.
“Fiduciaries must act with undivided loyalty to plan participants.  When it comes to ESOP stock purchases, they must ensure that the plan receives full value for its money,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi.

An investigation by the Chicago Regional Office of the department’s Employee Benefits Security Administration focused on a September 2007 stock purchase. The suit alleges that PBI violated ERISA by imprudently and disloyally approving the purchase of stock by the plan.  The suit seeks to require PBI to restore all losses suffered by the ESOP, plus interest.

At the time of the stock purchase, Miller’s Health managed 31 long-term care facilities under the name of Miller’s Mary Manor and 10 assisted living facilities under the name Miller’s Senior Living. Miller’s Health also operated Theracare, Inc., an Indiana corporation, which primarily provided physical and occupational therapy and speech-language pathology to residents in Miller’s Health facilities.
After conducting its investigation, the department concluded that, as a result of the design of the transaction and the fiduciary breaches of PBI, the stock purchase was not for the primary benefit of participants and did not promote employee ownership in Miller’s Health. As a result, the department concluded that PBI was responsible and liable for violations of the Employee Retirement Income Security Act.

The lawsuit also seeks to remove PBI as a fiduciary and service provider of the plan and to permanently bar it from serving as a fiduciary or service provider to ERISA-covered plans in the future.

As of Sept. 30, 2012, the ESOP had 2,939 participants and assets of $12,848,000.

U.S. DOL SUES TO RECOVER EMPLOYEE LOSSES IN STOCK OWNERSHIP PLAN

FROM: U.S. DEPARTMENT OF LABOR

US Labor Department sues to recover losses to employee stock ownership plan of Rembar Inc.

NEW YORK — The U.S. Department of Labor has filed a lawsuit to recover losses suffered by participants in the Rembar Inc. Employee Stock Ownership Plan after the plan allegedly was allowed to purchase overvalued company stock. The suit names as defendants Rembar owner and CEO Frank Firor and First Bankers Trust Services Inc., which was hired as an independent fiduciary and trustee in connection with the company's newly formed plan. The plan is also a defendant.

"Employee Retirement Income Security Act fiduciary duties are the highest standard of care known to the law and apply to those who manage employee benefit plans," said Jonathan Kay, regional director of the Labor Department's Employee Benefits Security Administration's New York Regional Office. "The department remains committed to ensuring that fiduciaries work solely in the interest of plan participants and beneficiaries."

The suit alleges that, in June 2005, First Bankers Trust Services allowed the plan to purchase 100 percent of the company's stock from Firor and Firor's relatives for $15.5 million. An investigation by EBSA determined that First Bankers Trust Services failed to comply with its duty to understand the valuation report that set the purchase price, identify and question assumptions in the report, and verify that the conclusions in the report were consistent with the company's financial data. As a result of First Bankers Trust Services' failure to comply with its fiduciary duties, the plan overpaid for the stock and suffered losses.

The suit seeks, among other things, to recover jointly from First Bankers Trust Services and Firor all losses suffered by the plan.

Rembar Inc. is engaged in the distribution and manufacturing of precision parts made from refractory metals. The suit was filed in the U.S. Court for the Southern District of New York and is being litigated by the department's Regional Office of the Solicitor in Manhattan. The suit is based on an investigation conducted by EBSA's New York Regional Office.