CA Firm Charged with Misusing ESOP Assets
November 13, 2008 (PLANSPONSOR.com) - The U.S.
Department of Labor has sued the board of directors of The
Employee Ownership Holding Co. of Stockton, California, and
Fife, Washington, for alleged violations of the Employee
Retirement Income Security Act (ERISA).
According to a DoL news release, also being sued are
trustees of the company's employee stock ownership plan
(ESOP), its attorney, certified public accountant, and
valuation adviser. 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 themselves.
The suit alleges that in 2004, ESOP trustee Robert E.
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, the news release said.
Couturier received $26 million in cash, a $5.5 million
property in Palm Desert, California, $2.7 million in cash
to pay taxes on that property, a $200,000 car, and a
country club membership.
Eddy and David R. Johanson of Johanson Berenson LLP
hired convicted felon Matthew Donnelly and his firm
Business Appraisal Institute to justify the overpayment to
Couturier.
In addition, the defendants engineered a way to
funnel the $26 million in cash into Couturier's
individual retirement account as a rollover from his ESOP
account.
Eddy and James Roorda, with the assistance of Johanson,
convinced Couturier to hire them to manage a portion of the
millions in gains paid to Couturier.
Finally, the DoL alleges that in 2007, David L. Heald
and his firm Consulting Fiduciaries Inc., 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.
According to the announcement, 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, and 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.
Rebecca Moore
editors@plansponsor.com