Parties have reached a settlement in a lawsuit alleging the imprudent and disloyal sale of Rainbow Disposal Co. Inc. Employee Stock Ownership Plan (ESOP) assets.
Defendants in the suit include the ESOP plan committee, GreatBanc Trust Co. and Republic Services, as well as eight individuals. The total cash settlement amount is $7.9 million, with $7.5 million to be paid by or on behalf of Rainbow and the other Republic defendants and $400,000 to be paid by or on behalf of GreatBanc.
According to the original complaint, the plan was first created on July 1, 1995, and held 100% of Rainbow’s stock. The lawsuit alleges a series of bad-faith dealings were made by the executive leadership of Rainbow, through which they funded the creation of new companies and otherwise redirected ESOP assets. According to the plaintiffs, apart from allegedly violating the plan document, these investments caused losses to the Rainbow ESOP while benefiting the executives. Eventually, the entire amount of Rainbow stock was unilaterally sold to a third party, triggering the filing of the lawsuit.
Last year, a federal judge in the U.S. District Court for the Central District of California denied the defendants’ motions to dismiss the lawsuit. In that decision, there was a section that described the alleged role played by a fake attorney who, according to the plaintiffs, basically attempted to intimidate or misdirect potential plaintiffs.
Ultimately, after all distributions had been made, the plaintiffs received approximately $15 per share, which is less than the $16.67 per share as set forth in a June 2014 valuation and less than the $17.66 per share as set forth in an October 17, 2014, letter to plan participants. The plaintiffs argued that even these amounts were less than what the stock would have been worth had the defendants acted more prudently and loyally.
According to the settlement agreement, the defendants do not admit to any wrongdoing.
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