PEOPLE CARE HOLDINGS INC., REACHES $10 MILLION SETTLEMENT WITH LABOR DEPT. IN EMPLOYEE STOCK OWNERSHIP CASE

FROM:  DEPARTMENT OF LABOR 

$10M settlement reached with People Care and US Labor Department
Agreement includes more than $9M to employee stock ownership plan

WASHINGTON — The U.S. Department of Labor today announced a $10 million settlement agreement with People Care Holdings Inc. and former owners Bruce Jacobson and Jerry Lewkowitz, who sold the company to their employees through creation of an employee stock ownership plan. The department contended that they violated the Employee Retirement Income Security Act by permitting the ESOP to purchase People Care stock from them for more than its fair market value.
An investigation by the Employee Benefits Security Administration's New York Regional Office found Jacobson, Lewkowitz and People Care breached their fiduciary duties by failing to correct unrealistically optimistic projections of People Care's future earnings and profitability, even after People Care lost a key municipal contract. The investigation also found that the stock purchase agreement's indemnification provision was invalid because it would require People Care, which is entirely owned by the ESOP, to pay any costs incurred by Jacobson and Lewkowitz in connection with an investigation or litigation.
"Owners who sell their companies to their employees and benefit from ESOP tax treatments are responsible for ensuring that the terms are fair to the plan and its participants," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "They have a duty to monitor the independent trustees that they appoint to oversee the transaction."

Under the terms of the settlement agreement, Jacobson and Lewkowitz will pay $9,090,910 to the ESOP and a civil penalty of $909,090.

People Care is a home-care agency, based in Manhattan, that provides caregiving services, such as meal preparation, laundry, shopping, housekeeping, companionship and medication assistance. Its ESOP has approximately 4,655 ERISA-covered plan participants. It has facilities in New York and New Jersey.

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.

ALLEGED REAL ESTATE INVESTMENT FRAUD INVOLVING LAND VALUE MARK-UPS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 7, 2012 The Securities and Exchange Commission announced an asset freeze against a San Diego-based firm and its owner accused of running a real estate investment fraud that raised approximately $50 million from hundreds of investors nationwide.

The SEC alleges that Western Financial Planning Corporation and Louis V. Schooler sold units in partnerships that Western had organized to buy vacant land in Nevada and hold for sale at a profit at a later date. Schooler and Western failed to tell investors that they were paying an exorbitant mark-up on the land, in some cases more than five times its fair market value. Schooler and Western also failed to tell investors that the land held by the partnerships was often encumbered by mortgages that Western used to help finance the initial purchase of the land.

"Schooler conned hundreds of people into investing with Western by leading them to believe that they were getting a good value for plots of vacant land," said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office. "What he didn’t tell them was that the land was worth only a small fraction of their investment and that he was profiting at their expense."

The SEC’s complaint filed in federal court in San Diego alleges that Western and Schooler misled investors since 2007 by providing them with comparative prices or "comps" of supposedly similar plots of land that had sold for prices higher than those offered by Western. In reality, the real estate comps that Schooler and Western provided were in no way comparable to the land sold by Western. The SEC also alleges that since the spring of 2011, Schooler paid "hush money" to silence investors who discovered they had been defrauded, allowing the scheme to continue.

The Honorable Larry A. Burns for the U.S. District Court for the Southern District of California yesterday granted the SEC’s request for a temporary restraining order and asset freeze against Schooler, Western, and all entities under Western’s control, and appointed Thomas C. Hebrank as a temporary receiver over Western and the entities. Judge Burns has scheduled a court hearing for Sept. 17, 2012, on the SEC’s motion for a preliminary injunction.

The SEC’s investigation was conducted by Sara Kalin and Carol Shau of the Los Angeles Regional Office. Molly White will lead the SEC’s litigation. Ron Warton, Andy Ganguly, Michelle Royston, and Karol Pollack conducted the SEC examination that prompted the investigation.