DOL Recovers $10M for ESOP
The DOL 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 ESOP. The DOL alleged that this action violated the Employee Retirement Income Security Act (ERISA) by permitting the ESOP to purchase People Care stock from them for more than its fair market value.
As per the settlement, Jacobson and Lewkowitz will pay $9,090,910 to the ESOP and a civil penalty of $909,090.
An investigation by the DOL’s Employee Benefits Security Administration’s found that 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 revealed 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.
Dan Gagnier, a spokesperson for People Care, says, “While we have consistently and accurately maintained that the Secretary of Labor’s inquiry would not result in liability to People Care and/or its former shareholders, and that the actions associated with People Care’s independently and professionally valued transaction to become an employee stock ownership plan (ESOP) company which was approved by a discretionary, independent, and institutional trustee complied in all respects with all legal requirements, we are focused on doing what is best for our clients and employees and for the ESOP participants. Therefore, we are pleased to put this inquiry behind us and get back to what we do best–providing high quality home health care services to sick, elderly and disabled persons.”
People Care, which is based in Manhattan, provides caregiving services such as meal preparation, laundry, shopping, housekeeping, companionship and medication assistance. It has facilities in New York and New Jersey. Its ESOP has approximately 4,655 ERISA-covered plan participants.
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