GreatBanc Trust Co. has settled an ERISA claim brought by the DOL for $5.25 million.
In 2012, the Labor department claimed that GreatBanc breached its fiduciary obligations under ERISA in its relationship as trustee to the ESOP of Sierra Aluminum, a Riverside, California-based materials company.
GreatBanc Trust, of Lisle, Illinois, allegedly allowed the employees of Sierra Aluminum to purchase shares of the company from co-founders and top executives for more than fair-market value.
The lawsuit alleged that GreatBanc failed its fiduciary obligations to the 385 participants in Sierra’s ESOP by not adequately vetting an appraisal of the company’s value, which was based on unrealistically estimated projections of its future earnings and profitability.
Specifically, GreatBanc failed to investigate questionable adjustments to financial statements that informed the appraisal.
“The benefit of this settlement is two-fold: The Sierra Aluminum plan will recoup a significant amount of money, and perhaps more importantly, safeguards will be put in place to protect ESOPs involved in any future GreatBanc transactions,” Labor Secretary Thomas Perez said in a statement.
GreatBanc and its fiduciary insurance policies will restore $4.7 million to the company’s ESOP plan and will pay nearly a half-million dollars in civil penalties.
As part of the settlement, GreatBanc has to implement new safeguards when it takes on the role of trustee or fiduciary to ESOPs with companies that are not publically held, including more thorough vetting of the outside advisor it uses to value companies, the oversight of the valuation and documentation of the process.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
