A Kentucky-based community bank has settled an outstanding lawsuit brought by the Department of Labor in December 2013.
The DOL alleged that PBI Bank, Inc., breached its fiduciary obligations under the Employee Retirement Income Security Act in its role as trustee to Miller's Health Systems Employee Stock Ownership Plan.
In the suit, the DOL claimed that in 2007, participants in Miller's Health ESOP paid $40 million to acquire stock in the Warsaw, IN-based manager of long-term care and assisted-living facilities.
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The purchase was based on stock valuations "far in excess of the fair market value of the stock" provided by PBI Bank, which was working as trustee to the plan and in conjunction with Miller's Health principals.
Efforts by PBI Bank and six named principals of Miller's Health to have the case dismissed, in part on ERISA's statute of limitations, were denied by a federal court in the Northern District of Indiana in November 2014.
After investigating, the DOL concluded that the upshot of the deal's design was that stock purchase was not for the primary benefit of plan participants, as is required under ERISA. Nor did the stock purchase promote employee ownership in the company, according to a DOL press release.
As of September 2012, the Miller's Health ESOP had almost 3,000 participants and nearly $13 million in assets.
In a company release, PBI Bank will pay an undisclosed amount back to the Miller's Health ESOP and will no longer be able to serve as trustee to any other ESOP plan under ERISA's jurisdiction.
Neither PBI Bank nor Miller's Health admit wronging as a term of the settlement.
In August 2014, the DOL brought a separate claim against PBI Bank related to its relationship as trustee to the ESOP of AIT Laboratories.
In that case, the DOL alleges that in 2009 the ESOP purchased $90 million of AIT stock, based on valuations provided by PBI Bank that the trustees "knew or should have known" were unreliable.
"Among other deficiencies, the valuation allegedly failed to account for increased competition from AIT Holdings' major competitors and failed to account for negative price pressures from AIT Holdings' largest sources of revenue," according to court documents.
AIT Laboratories is an Indianapolis-based provider of clinical lab testing. DOL's suit against PBI Bank in that case also alleges AIT's founder and CEO Michael Evans was unduly enriched by the inflated valuations.
DOL's claim against PBI Bank in its relationship as trustee to AIT's ESOP is proceeding in U.S. District Court for the Southern District of Indiana.
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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.
