DoL Sues Trustees over Company Stock Purchases
The U.S. Department of Labor is suing the trustees and other fiduciaries of the employee stock ownership plans and eligible individual account plans of DirecTECH Holding Co. Inc. for allegedly using plan assets to purchase company stock at inflated prices.
The DoL lawsuit alleges the trustees of the plans of DirecTECH Holding Co. Inc. and its former subsidiaries (DirecTECH Inc., Michigan Microtech Inc., JBM Inc., and DirecTECH Southwest Inc.), as well as the companies’ boards of directors and the parties who sold stock at inflated prices to the plans in seven separate transactions, caused millions of dollars of losses to the plans and their participants.
The suit says the board of directors and trustees to the plans violated the Employee Retirement Income Security Act (ERISA) by causing or allowing the plans to pay inflated prices to purchase company stock over the period of December 31, 2003, through September 8, 2006. During the period, the plans purchased company stock at a total price in excess of $60 million, which had a reported value of approximately $18 million as of December 31, 2007.
The DoL also claims the plans’ fiduciaries used flawed valuations for the stock transactions, failed to select a qualified appraiser for the stock transactions, and provided inaccurate and incomplete information to the appraiser and his firm.
The suit seeks a court order requiring the fiduciaries to restore to the plans all losses with interest and requiring the fiduciary defendants to forfeit their interests in plan accounts to offset money owed to the plans, and requiring the defendants who sold stock to the plans return all profits they received. The suit also seeks to bar all the defendants from serving as fiduciaries and service providers to any plan governed by ERISA in the future.
The plans, which in June 2005 were merged into the DirecTECH Holding Co. plan, collectively covered as many as 5,799 participants.