After a 19-day trial, a U.S. District Court Judge in the Southern District of Mississippi has ordered the fiduciaries of Bruister and Associates Inc. to pay nearly $6.5 million to two of the company’s employee stock ownership plans.
Based in Mississippi, BAI is a privately held subcontractor for DirecTV subscribers. Between December 2002 and December of 2005, Herbert Bruister, the sole owner of the company, sold all of his stock – $24 million worth — to his employees through two ESOP plans.
The Department of Labor alleged that Bruister and two other plan fiduciaries engaged in prohibited transactions, causing the employees purchasing the stock to pay an inflated price for shares based on flawed valuations.
Judge Daniel Jordan found that Bruister, his attorney and the other fiduciaries fired an attorney for the plans because his work was too “thorough,” according to a statement from the DOL.
Also, and the fiduciaries exercised undue influence over the independent third-party accounting firm hired to value the shares. The court found that Matthew Donnelly, and his firm, Business Appraisal Institute, were not sufficiently independent of Bruister, resulting in the over-valuing of the shares.
“Plan fiduciaries have an obligation to work solely in the interest of plan participants,” said Phyllis Borzi, assistant Secretary of Labor and head of the Employee Benefits Security Administration, which oversaw the investigation of BAI.
“When they fail to do so, the retirement security of workers is put in jeopardy, and we will take action to make plan participants whole.”
The court has ordered Bruister, and fiduciaries Amy Smith and Jonda Henry, to jointly pay $4.5 million in restitution to the ESOPs. Bruister will pay an additional $1.98 million in lost interest payments to the plan. The Bruister Family LLC will also pay about $1.25 million in restitution.
Since 2010, the DOL has recovered more the $241 million in ESOP violations, most of which involved improper valuations, according to a blog post by Phyllis Borzi.
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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.
