ESOP Stock Investment Suit Settled

February 19, 2003 ( - Participants in the now defunct United Companies Financial Corp's employee stock ownership plan (ESOP) have reached a $10 million settlement with the company's owners.

The class-action suit had claimed that the ESOP allowed, but did not require, the plan administrator to invest in stock of the Louisiana-based firm.    However, after the stock began to slide, United Companies stopped using its own stock to match employee contributions in its 401(k), but the administrator of the ESOP continued to invest employee funds in United Companies stock, a ccording to a report by The Advocate Online.

Ultimately, the collapse of United Companies’ stock caused the value of the ESOP plan to plummet in 1997, from $87.5 million to $44.2 million.    Following this precipitous drop, the employees filed three separate class-action lawsuits claiming the management of United Companies should not have invested employee funds solely in company stock.   The separate lawsuits were later consolidated.

The settlement, filed in the Baton Rouge District Court, covers several thousand employees who contributed to the ESOP after September 1, 1995.    The Baton Rouge-based provider of high-risk consumer loans filed for bankruptcy protection from its creditors in March 1999.

The amount each person receives from the settlement will be based on how much he had invested in the ESOP, according to the settlement agreement.   The four attorneys in the case will receive 30%, or about $1.2 million, of the settlement.   United Companies executives were excluded from the settlement.

Second to One

The recent settlement is the second agreement reached between United Companies and its former stockholders.   In 2002, approximately 7,500 stockholders in the company were awarded a $20.5 million settlement.

The former shareholders has sued United Companies’ former chief executive officer J Terrell Brown and president and former chief financial officer, Dale Redman, alleging the two millions of dollars in debt from investors.   People, unable to see the hidden financials, mistakenly continued to purchase the stock under the false pretense that the company was financially sound.