FOREST, VA – The U.S. District Court for the Western District of Virginia has ordered the former CEO of a Virginia packaging equipment company and the bank that acted as a transactional fiduciary of the company’s Employee Stock Ownership Plan (ESOP) to restore $6,502,500 to the plan.
An investigation by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) found that Adam Vinoskey, former CEO of Sentry Equipment Erectors Inc. – based in Forest, Virginia – and Evolve Bank and Trust violated the Employee Retirement Income Security Act (ERISA). The breach occurred in December 2010 when Vinoskey and Evolve approved the ESOP’s purchase of Vinoskey’s stock at an inflated price. Specifically, the ESOP paid $406 per share for Vinoskey’s 51,000 shares, which was an overpayment given the stock’s fair market value. In 2009, the stock appraised at $285 per share.
“ESOP’s are a valuable and highly effective tool for helping workers prepare for retirement, but an ESOP must not overpay,” said Assistant Secretary of Labor for the Employee Benefits Security Administration Preston Rutledge. “This is what happened here, and it hurt the workers.”
“Vinoskey and Evolve violated their fiduciary duties by failing to ensure that the ESOP paid no more than adequate consideration for Vinoskey’s stock in the 2010 transaction,” said EBSA’s Philadelphia Regional Director Michael Schloss.
In its 100-page decision, the court explained that as a fiduciary to the ESOP, Evolve Bank failed to notice, question or investigate several red flags that appeared in the appraisal of the stock that was used to set the $406 per share price. By failing to investigate these red flags adequately, Evolve Bank failed to live up to the stringent duties of loyalty and prudence imposed by ERISA. The court also held that Vinoskey violated ERISA when he accepted a $406 per share price at a time when he knew, or should have known, that Sentry’s stock was worth less than that price.
“Properly administered employee stock ownership plans can provide employees with valuable benefits in retirement,” said Jodeen M. Hobbs, ERISA Regional Counsel for the U.S. Department of Labor in Philadelphia, Pennsylvania. “To achieve this benefit, however, plan trustees must act in the best interests of the plan participants when reviewing the value of the company stock and not pay more than fair market value.”
Employers and workers can reach EBSA toll-free at 866-444-3272 for help with problems related to private sector retirement and health plans. More information is available about EBSA.
The Employee Benefits Security Administration (EBSA) is committed to educating and assisting the nearly 149 million workers, retirees and their families covered by approximately 703,000 private retirement plans, 2.3 million health plans, and similar numbers of other welfare benefit plans holding approximately $9.9 trillion in assets; as well as plan sponsors and members of the employee benefits community. EBSA balances proactive enforcement with compliance assistance and works diligently to provide quality assistance to plan participants and beneficiaries. It is the policy of EBSA to provide the highest quality of service to its customers.
The mission of the Department of Labor is to foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights